How can a modern vendor management system save you money?
  • 9 min read

How can a modern vendor management system save you money?

Academics and experts agree the future of work is about flexibility and adaptability. Organizations have responded to a new market reality of a post-COVID lockdown era, by increasing their commitment to flexible working and the use of a flexible workforce increasingly comprised of contingent workers. A Vendor Management System (VMS) is the key construct in managing a flexible workforce. Read this article to explore the features and benefits you should expect from a modern VMS solution and how it can optimize your Contingent Workforce Management program.

You May be Missing Out

The VMS technologies of 2020 are nothing like the platforms that set the industry moving back in the Y2K era. Advances in digital technologies–particularly artificial intelligence, cloud computing, big data, voice recognition and chatbots—have transformed the possibilities of VMS solutions to deliver more value. That said, we would argue what makes a modern VMS so different to the systems first-time adopters are already using is less about the technology and more about their newly found purpose.

A Modern VMS Serves a Different Purpose to its Y2K Predecessors

The fundamental reason why modern VMS platforms are so different to their predecessors is that the purpose of a VMS has changed over time, so much so that you could argue it’s not an appropriate title for this genre of software anymore. That said, familiarity of terms has its advantages!

When the term Vendor Management Systems was coined by in the 1990’s, employers had very different needs. For the best part, contingent talent was viewed as ‘temporary.’ Few industry watchers predicted an era when as much as 40% of a typical workforce would always be made up of contractors.

Demand has Risen for a Permanent Flexible Workforce

Today, the latest stats on the employment industry make clear that while contingent workers, as individuals, may be considered temporary, the role of a contingent workforce as an integral part of a modern workforce is permanent.

According to the EY [Contingent Workforce Study] published in 2018, on average, by 2020, almost one in five US workers will be contingent — the equivalent of 31 million people.

Morgan Stanley, reported in 2019 that up to 35% of the U.S. working population of over 55 million people may be engaging in temporary work of some form, while in the United Kingdom, Germany and France, the rate of growth in the gig economy is exceeding relative full-time employment growth (gig workers in the EU doubled in the years 2000-2014).

Ernst and Young suggest that since the financial crisis, full-time hiring rates among the U.S. S&P500 index of companies have fallen to 2.7% while gig working has increased. Similar trends are also observed in other economies — for example, in 2016, almost 5 million people performed commissioned tasks in the United Kingdom.

Nearly half of global company HR directors surveyed by PwC expect that external contractors will account for 20 per cent of the total number of workers, while the value of the U.S. gig economy is expected to reach USD2.7 trillion in 2025.

The Digital Age Created the Gig Economy

It’s not by happenstance that we’ve ended up with a gig-working economy. The rampant pace of globalization made possible by the improved communications of the mobile and internet era has dramatically increased the tempo of business. Many organizations reliant on full-time workers, have found their fixed costs impossible to shake-off and have gone to the wall. Others have recognized that, if they want to stay competitive, they need to re-think how they fill their vacancies.

In a perfect storm of talent challenges, this need for employers to create a more flexible workforce has occurred while talent shortages (again, largely because of the pace of change in digital technologies and demands for new skills) have scaled to dizzy levels.

A 2019 survey by Gartner shows that talent shortage is viewed as the top emerging risk facing large enterprises. This US centered survey of 137 senior executives in 4Q18 showed that concerns about “talent shortages” now outweigh those around “accelerating privacy regulation” and “cloud computing”, which were the top two risks in 2018.

A rampant demand for talent, blended with pressures to maintain agility in the mid-term structural costs of running and organization, has led many talent leaders to conclude that a permanent contingent (‘flexible’) workforce is the best way to make ends meet. And to manage that flexible workforce, they need technology.

When Contingent Working is a Permanent Fixture, You Need More than a VMS

Put most major US employers under the microscope and you’ll find today that something like 40% of roles are fulfilled by contingent workers of one form or another.

These workers may be contracted in different ways—as outsourcers, consultants, Statement-of-Works projects, micro-task workers, knowledge portal contributors, etc. but essentially, these works are being performed by non employees, paid through contracts. Additionally, these individuals will have been sourced through a variety of means and channels.

One of the fundamental issues in terms of governance and control over spend is that some roles will be fulfilled by HR, some by Purchasing, while others will be dealt with directly by department heads. Furthermore, many employers are now hiring contingent workers directly through their online job portals and micro-task platforms. That means not all freelancers are indirectly sourced anymore.

It makes for a complex ‘people, process, technology, and data’ challenge for companies of all sizes; one that no out-of-the-box software application can hope to fix without large amounts of integration and configuration.

What a Modern VMS Must Do Well

In this new age where flexible working has become the norm, not the unusual, Vendor Management Systems, in their new guise as Total Talent Management portal, have to do a variety of tasks well. We’ve summarized them here:

Cutting indirect spend

Prior to implementing a VMS, indirect spend is normally abnormally high because no comprehensive monitoring system or method exists to regulate the contracts and behaviors of Hiring Managers and staffing suppliers. Bad practices pervade; like charging excessively for contract extensions, or failing to meet insurance requirements for workers.

When ANY Vendor Management System is installed, you’d expect these issues to be dealt with and for the economies to come flooding in. But that presupposes that your VMS is flexible enough to adapt to the way you need to CONTROL your spend. Many systems in the past have been built to a one-size-fits-all model and costs to implement and modify these systems can prove so expensive that aspirational RoIs are never materially realized.

Migrating to a modern glue ware tech ecosystem means that organizations fully harvest the rewards of bringing their flexible workforce supply-chain and hiring approach under control by adapting their VMS ecosystem to fit.

Bringing transparency across flexible workforce operations

Improving the transparency of performance across your talent lifecycle can do wonders to further expose opportunities for cost economies. When Vendor Management Systems came into the market, the quality of reporting was woeful. Thankfully, over two decades, the quality of reporting tools has improved. That said, the usefulness of insights largely hasn’t. The battle of VMS vendors to present the prettiest dashboards and graphs has overshadowed the need to ‘test’ the usefulness of insights.

As Suresh Gupta, Sr. Technology Architect at SimplifyVMS explains, “We’ve seen a transition in the last few years away from basic reports and charting towards ‘useful insights.’ The priority for VMS solutions is to deliver these ‘so-what?’ insights for each stakeholder group in such a way that it aids day-to-day productivity and actionability I.e. Users interpret insight and see they must act on what they’ve learned.”

Increasing the supply of best-fit talent

Faced with a pressure to fill vacancies, the pressure is on HR and Procurement to find better ways of tapping into the best-fit talent on the right terms. Embracing new approaches like Statement-of-Work, micro-task work fulfilment and Direct Sourcing is only possible with the right technology. Modern Vendor Management Systems have to meet these needs if they are to be truly useful.

Re-enforcing company policies, culture and attitudes

As compliance pressures grow, flexible workforce management must answer a growing call to treat workers consistently and fairly whilst not treating them as employees. It’s an awkward balance for any business to get right, particularly if they’re unfamiliar with the regulations and legal parameters they must operate within.

Re-enforcing policies and attitudes, ensuring they are reflected in the day-to-day operating behaviors of workers, means VMS solutions must step-up to the task with new solutions to improve factors such as flexible workforce onboarding, training on policy awareness, governance and transparency.

Filling technology short-comings and voids

With so many excellent best-of-breed software platforms and tools on the market, it rarely makes sense to ignore the opportunity of embracing these very targeted solutions for mediocre technology that attempts to do everything. This means, modern VMS solutions work best when they are the glue that

Exposing the big picture

For executives, an important role of a modern Vendor Management System is to bring context to the value and performance of the flexible workforce as a component of a Total Talent Management approach. Examining the effectiveness of the flexible workforce is difficult to achieve without seeing it in context—i.e. as a portion of the total workforce, when compared to other programs, when balancing performance against competitive peers, assessed against market and industry benchmarks, etc. Unfortunately, this isn’t easy to get right. It’s not enough for a VMS to examine ONLY the data it creates and manages: What’s also needed is the aggregation of insights from back-office and HR systems against which performance parallels, benchmarks and perspectives can be made.

Summary – Where the Savings Come From

Any business that wants to exist for the next decade, needs to learn from what’s happened over the last decade—and adapt. Executives know that the new world order shaped by the COVID-19 pandemic—characterized by remote working, rapid market changes, and different consumer behaviors—is no longer unusual, but the new normal. Aligning your Flexible Workforce Program to this new reality of sourcing and managing flexible workers requires a technology built for this new purpose. It may still be described as a ‘VMS’

Procure a VMS with a modern tech stack and expect to see economies in the following areas:

  • Increase visibility over your indirect spend and expose excessive costs and pay terms
  • Pay less for your talent by harnessing market insights to set rates
  • Reduce ‘cost of acquisition’ by leveraging AI-driven processing of background checks, etc.
  • Reduce MSP rates and admin costs by removing the ‘human-in-the-loop’ thanks to greater automation, fewer hand cranked processes, and tighter integrations with systems (facilitating machine-to-machine integrations)
  • Spend less on your technology tools
  • Have less money floating around your indirect spend supply-chain at any one time by streamlining procure-to-pay; avoiding disputes with suppliers and incorrect payments etc.