Vendor management system

Introduction

VMS (Vendor Management Services) is a fairly recent advancement in managing contingent labor spend. VMS is an evolution of the Master Service Provider (MSP) / Vendor-On-Premise (VOP) concept, which became more prevalent in the late-1980’s to the mid-1990’s when larger enterprises began looking for ways to reduce outsourcing costs. An MSP or VOP was essentially a master vendor who is responsible for on-site management of their customer’s temporary help / contract worker needs. In keeping with the BPO (Business Process Outsourcing) concept, the master vendor enters into subcontractor agreements with approved staffing agencies.

It is noteworthy to mention that VMS really started to evolve around the time Michael Hammer and James Champy's Reengineering the Corporation became a bestseller. Large enterprises were looking for ways to compete in the global economy. The main advantage for U.S. businesses during the this time period was their purchasing departments were able channel new contract personnel requisitions to one source – the VOP – and, in turn, reduce procurement costs by simplifying their payment process. In effect, they only had to write a check to on vendor vis-à-vis hundreds of suppliers.

Evolution of VMS

With the Internet came new ways of doing business, which included electronic payment. According to Staffing Industry Analysts, Inc. – the premier research and analysis firm covering the contingent workforce – the emergence of eBusiness, B2B, E-Procurement et al was the catalyst that began the VMS industry.

As businesses began to integrate this e-business concept, online auctions such as Covisint began to appear. The value proposition was, they claimed, was they could reduce spend for purchasing office suppliers, industrial suppliers and other commodities by putting these purchase requests out for bid via an online auction.

However, the staffing industry in and of itself is an amorphous thing. Often called the shadow industry, even in the mid-1990’s because many large corporations were still not able to accurately report how many temporary or contract workers they had nor how much they cost. In fact, a study by a VMS provider, Taleo, contends that even today 21 percent of US companies cannot estimate their current annual spending for contingent labor. When you consider that, according to Taleo Research estimates, Global 1000 companies are spending an average about seven percent of overall company revenue on contingent labor… this could translate to hundreds of millions of dollars that are not being optimally managed.

The Pioneers

In 1993, one such company recognized the contingent labor spend management niche as an immense opportunity – Geometric Results Inc. (GRI). At its origin, GRI was a wholly owned Ford Motor Company subsidiary and it was GRI who developed one of the first significant VMS applications in the industry, PeopleNET.

Originally starting out as a manual process, some system automation was introduced in 1995. A year later, PeopleNet became an automated VMS system and its’ customers included Ford, Ford Credit, Fordland, Mazda, Jaguar, Ford UK and Visteon. Overall, GRI managed nearly $200 million in spend at Ford. Then in 1997, MSX International purchased GRI and, with this acquisition, become Ford’s first external Master Vendor.

In order to receive preferred minority-vendor status, MSX created a 51/49 minority-owned subsidiary and repackaged its web-based application now called “Tech Central” to service former GM parts supplier, Delphi Corporation. Tech Central was later sold to The Bartech Group, one of the largest minority-owned staffing suppliers and new MSP to Delphi.

In retrospect, we can see today that MSXi failed to significantly penetrate the VMS market outside of the automotive industry niche nor did it really support the software development effort needed to improve upon its competitive edge. It was also around this time that another company entered the fray – Chimes.

Although Chimes was a wholly owned subsidiary of Computer Horizons Corp., the key differentiator between it and other VMS providers that were emerging was that it positioned itself as a “vendor-neutral” provider of Business Process Outsourcing (BPO) services instead of just a technology company that licensed its’ VMS software. Chimes value proposition was it would create and staff a Program Office (PO) that integrated with the customer’s business Purchasing, HR, and Accounting processes. That is, Chimes realized that simply licensing its software to its customers was a strategy that could not guarantee a successful implementation and realization of the benefits of the VMS concept.

The Aberdeen Group, an independent research organization that has established the market leading position as the “voice that matters” when it comes to measuring results delivered by technology, found that less than 17% of companies who have implemented a program to manage their contingent labor workforce have seen an improvement in spend and source-to-cycle performance metrics. This supports Chimes contention that the best implementations are those that include an emphasis on improving business processes versus just selling a tool to a customer. Therefore, Chimes competitive advantage is that it provides an implementation team to set up a program office staffed by a Chimes service team where customers leverage its best practices as well as lessons learned. For more information, read about Chimes award from the Aberdeen Group: Best Practices in Category Spend Managment: Contract Labor

Benefits to U.S. Businesses

By 2002, there were over 50 VMS solution providers. The software was now web-based, so stakeholders – customer hiring managers, VMS program office staff, and suppliers – could access the system from the internet. And the best providers, such as Chimes,Click Commerce(Elance), IQNavigator, Beeline, Fieldglass, Taleoand Peopleclickwere adding significant value for their customers. Typical benefits included:

• Streamlined requisition approval workflow
  
• Reduced time-to-fill cycle times
  
• Bill rate standardization / management
  
• Optimization of supplier base
  
• Consolidated invoicing
  
• Improved security and asset management
  
• Availability of vendor performance metrics
  
• Visibility and cost control over maverick spend
  
• 10-20% reduction in contingent labor spend
  
  

VMS Trends

Aberdeen research reveals that 72% of US companies indicate they have a singular program for the management of contract labor and professional services sourcing and procurement. This is amazing proliferation since VMS software has only been around for about ten years. This proves, like everything else in a broadband world, the Industry (Maturity) Life Cycle for the VMS market is on an accelerated curve.

Although the industry is still in the latter phase of the Growth stage, vendors should be aware of the symptoms that indicate the arrival of the Industry Decline, such as when: A) competitive pressures force MSP/VMS margins to weaken, B) there is a rash of competitor consolidation via merger, acquisition or abandonment, C) sales expansion within the existing customer base is dramatically reduced, and D) sales volume to new customers in the US decline.

Once customers have realized the initial benefits of gaining control and managing their contingent labor workforce, there will be efforts at continuous improvement, to include cost reductions as well as analysis of what other indirect spend categories can be expanded. Opportunities for VMS providers include project-based spend, independent contractors, professional services among others.

Expansion into global markets (language and currency) is a logical next step. Can the niche VMS providers handle this on their own, or will the larger IT software and service companies such as Oracle, SAP, IBM, EDS or even Accenture enter the market? Only time will tell.

--Rwillbanks 14:05, 10 May 2007 (UTC)

See Also

• Contingent Workforce
• PEO
• Human Resources
• Human Resource Management
• Contingent Labor

External Links

• Chimes
• Click Commerce/Elance
• Ensemble
• IQNavigator
• Beeline
• Fieldglass
• iCIMS
• Taleo
• Peopleclick
• Aberdeen Group
• Staffing Industry Analysts
• The Bartech Group
• MSXi
• Accenture
• Oracle