What is a vendor management system?
A vendor management system (VMS) is a software solution that helps organizations manage their relationships with external suppliers or vendors.
Vendors – who are they?
What’s in a word? The term vendor can mean different things to different people and businesses depending on the situation.
In the world of vendor management and vendor management systems, there’s two main categories of “vendors” and consequently two types of software that support the related business processes. Vendors can be:
- Suppliers of goods and services
- Supported by supplier management software
- Contingent workers, contract employment agencies, and services providers
- Supported by a VMS – or vendor management system
Let’s dive into the details of these types of vendors and the software systems that support them.
Suppliers of goods and services
These types of vendors are suppliers or providers of goods and services that a purchasing company (“the buyer”) needs for day-to-day operations and the fulfillment of its mission. For example, a company may need steel to make a bike, or components to make a car.
In this scenario the term vendor is sometimes used interchangeably with supplier. Some types of companies are more apt to use one term over the other. Whichever they’re called, many enterprises work with thousands of vendors linked together in supply chains stretched around the globe.
This makes it difficult for companies to know everything they need to about their vendors and monitor their performance. It’s even more difficult to know about the vendors their vendors work with, and the ones they work with, and so on down the line.
What’s more, as enterprises extend global operations and work with vendors around the world, vendor data is often kept locally, in spreadsheets or on individual hard drives. It quickly becomes an outdated and manual system for vendor information management.
The lack of visibility into vendor information and vendor performance increases a company’s supply risk and impedes the ability to act quickly when dire situations arise – like a natural disaster, product recall, or ethics violations. It also makes it difficult for employees to know which vendors they are supposed to buy from.
To address these business pains, companies rely on vendor relationship or supplier relationship management software.
What is vendor or supplier management?
Vendor management is the multi-stage process of initiating and developing relationships with suppliers of goods and services needed to run your business.
From the buyer’s perspective, primary stages of vendor relationship management include:
- Supplier or vendor selection: Using an up-to-date risk profile and qualifying and segmenting based on category, location, and business unit
- Risk assessment: Performing risk due diligence based on the nature of your vendor engagement
- Contract negotiation: Establishing terms and risk KPIs
- Onboarding: With understanding of risk assessment and audit status
- Managing performance and monitoring/mitigating risk: Utilizing a matrix-based, single view of vendor and a data-driven incident model
The benefits of supplier management
Vendor management best practices call for implementing cloud-based supplier management software, integrated with procurement processes. The best vendor management software can:
- Equip vendors to manage company information themselves with simple tools that keep your vendor master data current
- Reduce cycle time by automating the supplier onboarding and qualification process and integrating it with other procurement processes
- Enable a vendor management framework that drives spend to preferred suppliers
- Syndicate real-time information for better vendor risk management through fast, informed decisions that prevent supply disruption
- Instill confidence that selected vendors can deliver high-quality goods and services on a sustained basis
Contingent workers, contract employment agencies, and services providers
In the world of “vendor management systems” – or VMS – the term “vendor” is a bit of a misnomer, but it refers to the contingent workers or the contract employment agencies who provide people-based services and talent that form a part of a company’s external workforce.
With an increasingly complex and multi-channel global workforce, enterprises must gain clear insight into who is working for them, where, why, when, and at which rates.
With answers to these questions, procurement and HR leaders are better equipped to meet business goals and gain a competitive advantage. This is why a VMS becomes an invaluable tool – as it gives acute visibility into the external workforce.
What is a VMS?
A VMS, or vendor management system, is a cloud-based software platform that solves a common problem for many global enterprises – how to find, engage, and manage its external workforce – both contract or contingent labor and services providers.
Why is a VMS important?
Recent research reports that one in two executives plan to increase their use of external labor, making a VMS more necessary today than ever before.
Increased globalization, a more competitive marketplace, and the need to fill specialized roles are just a few reasons why companies are increasingly reliant on the external workforce – contractors, temporary and seasonal workers, and services firms managed under statements of work (SOW) – to augment and supplement their total talent base.
With today’s digitally-based, remote, and global talent, the benefits of a vendor management system are clear: Companies can hire individuals and services around the world with flexibility and agility, securing in-demand talent, scaling up or down, increasing speed to value, and – ultimately – edging out the less nimble competition.
Finding and managing the right mix of labor, however, can be challenging. There are financial, legal, compliance, security, and cost implications to consider, particularly when it comes to employing a flexible, geographically distributed workforce. Companies that self-administer their extended workforce internally without a VMS can find themselves with administrative and managerial challenges. Workers and labor contractors may be spread across countries or continents with varying compliance and labor laws or spread across company departments with varying internal processes and technologies. With many parties and geographies involved in the talent sourcing, hiring, and on-boarding/off-boarding process, there is vast potential for miscommunication, inefficiency, untracked processes, and little visibility.
The rise of the external workforce
What does the greater use of external workers mean for procurement?
Key features of a robust VMS
Not all vendor management solutions in the marketplace are created equal. Every business needs to look for the features and value propositions of a robust VMS.
Here are the six most important qualities of top vendor management systems:
- Total workforce visibility With vendor management software, a business can take a more organized and systematic approach to managing their flexible workforce. A VMS makes it easy for organizations to achieve total workforce visibility, maximize cost savings, improve worker quality and efficiencies, and enforce compliance.
- Comprehensive reporting Vendor management software allows users to accurately evaluate time, cost, compliance, quality, and quantity by generating data-driven comprehensive reports, then comparing the evaluation to the industry as a whole.
- Efficient processes and compliance Organizations can leverage a VMS to implement procedures that are consistent across the entire organization, including different departments, geographic locations, brands, or divisions – even if the programs are managed independently of one another. This not only helps with organizational efficiencies, but also with ensuring compliance with local governmental and internal policies.
- Applicant tracking A VMS has powerful applicant-tracking functionality that helps organizations acquire the best talent and services, while creating a more efficient hiring process. From the moment a resource is requested to the time workers are on-boarded, the application takes automated actions that eliminate tedious administrative tasks. Hiring managers have access from anywhere to instantly approve or reject items, enabling the respective workflow to progress without delay.
- Data analysis The data-analytics capabilities of vendor management software can enable better enterprise-wide decision-making. A VMS provides direct access to an organization’s full contingent workforce program to gauge successes, make necessary adjustments, and continuously produce positive results.
In addition to these key features, there are also many excellent VMS benefits that allow enterprises to gain a competitive advantage – from cost savings and compliance to better onboarding and process improvements.