Important Links

Key Features and Benefits of a Vendor Management System

Today’s talent-driven workforce has pushed global companies to rely on a contingent workforce to address operational gaps, meet seasonal demands, and face increasing competition without any disruptions. According to a report by human resource solutions provider CXC Global, 77% of executives believed that freelance and gig workers will significantly replace full-time workers over the next five years. At the same time, 32% of executives replaced their full-time workers with contingent workers as part of cost-saving measures. In the U.S., the Bureau of Labor Statistics estimated in 2017 that more than 10% of workers were relying on non-traditional arrangements for their main jobs, including freelancing, temp work, and contractuals.This only underscores how the pandemic has joined increased globalization and an ever-competitive marketplace as top reasons behind many companies’ dependence on external workers. But while it offers cost-efficient solutions, managing an external workforce can bring challenges, too. From procurement to management, having the right mix of labor can be complex. Various aspects should be considered including financial, compliance, legal, cost implications, and security. This is where a vendor management system or VMS comes in. From alleviating the burden of admin-related tasks to reducing recruitment-related costs, a VMS is designed to help businesses facilitate the end-to-end supplier management process.Vendors are essential to a company as they play a key role in many internal processes. They also help drive growth so your company can achieve its short- and long-term projects. However, some companies and business leaders do not fully understand the intricacies of using a VMS. In this article, we will take a look at the main benefits of a VMS and the key features that you should look for in such a tool.

What is a vendor management system?

A VMS is a cloud-based software application or platform that enables companies to procure, engage, and manage an external workforce, particularly contract-based and contingent manpower and service providers. It helps a business automate and store information so it can streamline its processes when handling contingent-based staffing requirements. A VMS often has the following key features:

  • Order distribution
  • Headcount monitoring
  • Billing consolidation
  • Supplier management
  • Risk assessment and compliance tool

What features should you consider in a vendor management system?

Most VMS share the same features of organizing candidates based on their profiles, payroll processing, and other basic tasks related to recruitment. But beyond that, here are other things that you should look for before deciding to get a VMS.

Supplier discovery
Managing a diverse roster of external workforce and service providers is no easy task. That is why a good VMS must have a supplier discovery mechanism that can ease the procurement process. This tool must allow you to discover and filter providers based on different categories such as certification course, expertise, location, and age, among others. A supplier discovery mechanism should also let a business customize its registration portal, share supplier details internally, and have access to up-to-date supplier information.

Easy onboarding
Another important feature that a company should look for in a VMS is the ease of onboarding. The system must allow you to register your third-party suppliers quickly and have access to their information in an instant. Additionally, it must have self-service options for vendors when they need to update their details and receive notifications once an order is out or their payroll is in process.Your chosen VMS must also be integrated easily into your company’s existing process. Some VMS make the mistake of forcing companies to completely abandon their existing supplier management processes. While a company can greatly benefit from new approaches that are more agile, the ultimate decision on whether to adopt those new processes completely lies on the company itself and not the VMS.

Vendor rating feature
To better assess the performance of a vendor or supplier, a good VMS must have a rating feature. This will let your business evaluate and give status or standing based on key performance metrics such as timeliness, policy compliance, delivery, price, and quality. This feature may come in the form of an award system or a hierarchical ranking that rates the specific metric from poor to excellent.

A centralized database
Organizing critical vendor information such as contracts and financials is important to avoid oversight. Many companies, however, still adopt time-consuming strategies when managing these types of data and keeping an eye on their vendor relationships. To address this gap, a VMS must use a streamlined database where a company can store, manage, update, and retrieve crucial vendor information. 

Integration of functions
This feature will enable a company to avoid duplicating tasks, as well as eliminate redundant processes and activities. Unsurprisingly, redundancy is common among organizations. For example, it is typical for an organization to have its IT department handle vendor compliance and cybersecurity, and have someone else manage business continuity planning. While these may look like tasks that are independent of each other, they are prone to significant overlap. Hence, a good VMS must be able to integrate its processes so that it can provide data that give insights into all of the company’s risk management tasks and activities. This will allow the division handling vendor risk, enterprise compliance, internal audit, security breach, and business continuity to have access to a centralized database, thereby minimizing duplication of tasks in the process. This feature can come in the form of automated workflows, analytics, configurable reports, and cross-functional sharing of information.

Due diligence tools
As businesses’ dependence on vendors grows, so do the risks that inevitably come with it. To mitigate those risks, due diligence must be in place. According to the Federal Deposit Insurance Corporation, due diligence refers to the “review of all available information about a potential third party, focusing on the entity’s financial condition, its specific relevant experience, its knowledge of applicable laws and regulations, its reputation, and the scope and effectiveness of its operations and controls.” An effective VMS must have this in place to vet vendor prospects and review existing vendor relationships. Conducting due diligence is wide in scope and may include compliance, business operations, performance, financial profile, reputation, human resources, business continuity, information security, and legal issues.VMS due diligence tools can come in the form of vendor classification via risk scores, questionnaires, and risk assessments. Typically, existing vendors need to be re-evaluated from a compliance perspective prior to contract renewals or when a significant change to the company occurs. Here are some helpful questions that should be part of your due diligence questionnaire:

  • What were the changes to the vendor or supplier’s financial statements in the last one to two years?
  • Have there been major changes to the vendor’s technology, tools, and processes over the past 12 months?
  • Has the vendor been subject to regulatory actions over the past 12 months?
  • Would the vendor’s financial profile remain intact even without your company (or its largest customer)?

Difference between a vendor management system and a managed service provider

There are many tools that claim to efficiently manage external workers and a VMS is one of them. But because of their shared features, many people often confuse VMS with another platform that acts as an interface between the client and the supplier: a managed service provider (MSP). While sharing similarities, a VMS and an MSP are different platforms, and knowing their differences will help your company better navigate the complex world of contingent workforce management. First, let’s define a managed service provider. In human resources, an MSP is an employee management solution adopted by an external group to support a business’ contingent workforce through a combination of personal expertise, technology, and processes. An MSP can either cover all or only a portion of a business’s contingent workforce. Some responsibilities of an MSP include candidate marketing, payroll, talent pooling, and bidding process, among others. Like a VMS, an MSP helps companies eradicate all administrative-related burdens that are involved when procuring and managing an external workforce. Both systems are in demand now given the changing landscape in people management as more companies see the benefits of remote work.However, there is a clear distinction that separates a VSM from an MSP. In simple terms, a VSM is a software-based platform that lets you manage your workforce without the need for external human support. On the other hand, an MSP is a technology-based platform that is managed by people. The latter is more comprehensive than the former in terms of procuring and assessing candidates, as well as reducing overall expenses. In some cases, these two tools are combined together for a more efficient people management solution. 

Benefits of a vendor management system

A VMS is a great way to improve and centralize a company’s workforce-related processes. Let us take a look at the specific benefits it can bring to a company.

Workforce visibility
Handling a contingent workforce is a complex responsibility that, when not done properly, results in fragmented in-house systems and processes. These can make your organization vulnerable to inefficient budgeting and disproportionate hiring strategies. With a VMS, your company will be able to implement a transparent and more systematic talent procurement and management process. A VMS gives your company complete workforce visibility to help achieve cost savings, enforce compliance, and enhance worker quality.

Automate candidate monitoring
HR professionals often have to deal with different data sets when managing a contingent workforce, which could lead to costly human errors and inefficient time management. By adopting the right VMS for your company, you can get away with red tape related to hiring and automate the end-to-end process. This covers the moment a prospect is identified, their onboarding, performance tracking, and offboarding. A VMS makes it possible to have all the data available at your fingertips minus the tedious admin-related processes under conventional methods. A VMS lets managers have immediate access to data whenever they need it while allowing the workflow to progress as usual without interruptions.

Fast-track onboarding
Onboarding workers in a traditional way can be a long process that can slow down your team’s productivity. But with a VMS in place, you can fast-track the hiring process and receive the needed services right away, allowing you to generate your return on investment in a timely manner.

Data analysis
Companies’ reliance on technology when facilitating their daily operations means that data is an integral part of many decision-making processes. With a VMS, a business can measure success, analyze trends, and make adjustments as needed to continuously yield good results.

Streamline process and compliance
An organization operating from different locations can adopt a VMS to ensure that they are using the same procedures, regardless of differences in geography or division. A VMS can also help mitigate compliance risks by providing easy access to qualifications, certifications, and financials of a supplier or a vendor. This makes sure that an organization remains compliant not only with internal policies but with the local and national regulatory environment as well.

Detailed reports
A VMS can provide a comprehensive report to support an organization’s data-driven decision process. This includes information related to performance quality, headcount, cost, time, and compliance. Findings from this comprehensive report can then be compared to the whole industry for a better analysis.

Examples of a vendor management system

There are hundreds of VMS options that promise to revamp old-school processes to bring more efficiency to every business. Here are the most common vendor management systems according to tech marketplace G2:

  • SAP Fieldglass: 
  • Vanta
  • Airbase
  • Precoro
  • Genuity
  • Conclusion
  • Oracle Procurement Cloud
  • Blissfully
  • Productiv
  • Tradeshift
  • Gatekeeper
  • QuickBooks Online


A VMS is an important tool that can help companies achieve their targets. With increasing competition and heightened globalization, companies should look for opportunities to effectively manage their operations and processes. A VMS is a great tool to streamline those processes, remove tedious admin tasks related to onboarding contingent employees, and mitigate risks by ensuring compliance across all departments. A VMS is also helpful when integrating functions and creating a centralized database that all decision-makers within an industry can have access to at a click of a finger. 

Leave a Comment

Your email address will not be published. Required fields are marked *