September 9, 2019

You Can’t Measure What You Can’t See: Why Your Contingent Labor Program Needs a VMS

On July 16, we published an article that explored the new developments in candidate sourcing being spearheaded by companies such as Beeline and Coupa. Their latest iteration of the vendor management system (VMS), a familiar fixture in outsourced workforce management programs, is helping to spur a push in the evolving direction of talent marketplaces and self-sourcing platforms. But as we noted during our review of these enhanced offerings, they’re not just pioneering different approaches to recruitment and supplier management, they’re pointing the way toward overcoming the challenges that many mid-sized businesses have confronted when trying to organize a formal contingent labor program. Enterprise customers have long enjoyed the benefits that MSP/VMS engagements bring: visibility, centralization, and automation. Yet smaller and mid-market companies continue to struggle. Technology is the key to success here. But what does that solution look like?

VMS Is Not One Size Fits All

The pain points of managing supplier and talent populations across divisions have largely become bygone challenges for enterprise clients. However, these problems persist for small and mid-market customers; they haven’t truly had access to MSP/VMS solutions in the same way. Issues that may appear outdated to big procurement organizations remain fresh thorns in the sides of smaller businesses:

  • Visibility into worker locations, assignments, rates, and program spend
  • Process optimization and centralized administration
  • Cost containment through automation, streamlined distribution and approvals processes, consolidated billing and invoicing, etc.
  • Mitigated co-employment risk and increased compliance
  • Quality improvements and sourcing enhancements
  • Reduced cycle times
  • Labor forecasting and trending
  • Robust reporting for metrics, program analytics, service level agreements (SLAs), key performance indicators (KPIs), and the identification of renegade spend

In 2016, the staffing industry began acknowledging the “money left on the table” with mid-sized prospects. MSP and VMS providers started to retool their offerings. In 2016, SAP Fieldglass announced plans for a contingent workforce management solution called Flex, aimed at medium-sized businesses. The company hoped to make a foothold in a market segment historically out of reach for VMS providers.

“The criticality of middle-market companies is difficult to ignore,” wrote Nick Heinzman of Spend Matters at the time. “Despite by one measure comprising only 1% of the total number of commercially active firms in the U.S., they employ 53 million workers and contribute $9.3 trillion to the economy, according to according to the Middle Market Power Index from American Express and Dun & Bradstreet.”

Around that same time, Allegis Global Solutions (AGS) announced the launch of its SIGMA MSP offering. Smaller businesses then and now play a much bigger part in the economy, as highlighted by Elevated Resources, a managed services provider (MSP) specializing in mid-market accounts:

The market of U.S. mid-sized businesses—those with $100 million to $1 billion in annual revenue—is a big deal. While they comprise only 3% of total incorporated entities, they represent 1/3 of the U.S. GDP and 1/3 of all U.S. jobs. On its own, the U.S mid-market represents the third-largest global economy, greater than that of Germany. And, this is clearly not likely to change any time soon, as it has collectively grown between 6.1% and 9.2% every quarter since 2014.

Mid-market companies might be more likely to hire temp workers than their larger counterparts, given capital constraints. The U.S. Bureau of Labor Statistics (considered the most conservative estimate) broadly has 3.8% of the labor force as at temporary. This means a company of 3,000 employees likely has at least 100 temporary workers.

The staffing industry understands this, but has not fully conquered the barriers to entry. In a lot of ways, smaller clients still feel that MSPs are too large for their needs—that their offerings remain better suited to companies with sprawling enterprise spend. Interestingly, though, even some enterprise clients are migrating away from MSPs to embrace self-managed programs.

“A 2017 Staffing Industry Analysts report showed that 33% of global companies are managing their contingent worker programs internally, and that number is growing,” wrote Elaine Morris Roberts for Spend Matters. “Companies are making that decision because they need results that they’re not finding with MSPs. They need a shift from the tactical toward more strategic support. Specifically, they need decision support built on data analysis that includes forecasting; this shift has to come with more sophisticated technology, more appropriate suppliers and more dramatic cost savings.”

Here’s the point. Whether enterprise clients are moving away from MSPs or mid-sized businesses remain unconvinced that an MSP can play well on a smaller stage, program visibility and consolidation aren’t likely to happen without technology.

VMS Promotes Visibility, Compliance, and Process Efficiencies

At its core, a vendor management system (VMS) unites essential worker and supplier processes in a single application:

  • Requisitioning
  • Approvals and notifications
  • Rate controls and billing rules
  • Candidate engagement and interview scheduling
  • Timesheets and expenses
  • Assignment tracking and evaluation.
  • Reporting, analytics, and business intelligence
  • Supplier management

With a light MSP/VMS program, business owners gain access to technologies that may previously have been beyond their budgetary grasp. These systems typically offer a version containing just the core components:

  • Timesheet processing
  • Supplier data
  • Basic locations and job categories
  • Requisitioning
  • Approvals
  • Standard reporting

Even scaled back, the advantages to hiring managers are many. Not only can they record important data and access it on demand, they can automate timekeeping, attendance monitoring, requisition distribution, interview scheduling, metrics reporting, basic workforce analytics, and more.

VMS Benefits
  • Streamlined requisition approval workflow
  • Reduced time-to-fill cycle times
  • Simplified vendor management
  • 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

Supplier Benefits

A VMS can be as beneficial to staffing suppliers as it is to hiring managers and MSPs. Staffing firms that have shaped their business models to embrace VMS programs have transformed into more efficient and lucrative organizations. And it’s not just large staffing players that reap the rewards. Smaller and boutique staffing firms can realize substantial gains.

  • Financial gain: Access to programs that present opportunities to staff greater volumes and capture higher spend.
  • Big Data: VMS software offers suppliers access to a robust business intelligence and analytics system that can help them drive their businesses.
  • Reduced service costs: Suppliers can spend more time focusing on their talent and less time hunting down requisitions to fill.
  • Optimized billing and invoicing: The automated billing and invoicing supported by a VMS ensures accuracy, prompt payment processing, and reduced administrative overhead.
  • Automated communications: System generated notifications, alerts, and messages keep suppliers abreast of pending actions, new requisitions, interview requests, offers, negotiations, and timesheet approvals.

VMS Selection

Client stakeholders should carefully assess the needs of the business, the user community, and their staffing suppliers when choosing a system. Many VMS developers will load tons of functions to their systems in an attempt to create a feature-rich, universal application. But there are no one-size-fits-all solutions; every business is different. Job categories are unique. HR processes are tailored to the environment.

Clients should consider working with their supplier partners to document process flows, requirements, reporting criteria, approval structures, assignment parameters, timekeeping policies and invoicing processes upfront. Armed with this information, it’s easier to select a system that provides the features a company is actually going to use based on the collective needs of its supplier and hiring manager communities.

To be effective, the VMS must facilitate transparency and seamless communications with suppliers. The data they provide will influence nearly every aspect of the solution. The VMS must also include permissions that allow suppliers access to the data they need.

Best Practices
  • Include staffing suppliers in the design, configuration, and ongoing evaluation of the system.
  • Supplier tiers and distribution lists for job orders should be configured to each job category, skill set, or role type. Work in advance with suppliers to determine what requisitions they are most qualified to fill.
  • The VMS should facilitate responsive, visible, and timely communications. Make certain that the appropriate suppliers have access to the workflows, approvals, notifications, and communications channels needed.
  • Prior to implementation, map out processes and collect all data to be uploaded into the system. Work closely with the VMS provider as the data is scrubbed and loaded. Demand adequate time for User Acceptance Testing, and involve suppliers to ensure that the system is functioning properly prior to its Go Live date
  • Engage staffing suppliers in the configuration of requisition fields and templates so that sufficient details appear on job requirements.
  • Allow staffing partners access to the reports, business intelligence, and analytics that affect their efforts and performance. This data should be tracked and shared.

In a contingent labor program, stakeholders can’t measure what they can’t see. Spreadsheets, documents, emails, and phone calls can be useful tools in business, but they fail to bring every element of a workforce management program together seamlessly, transparently, and visibly. There are many VMS options on the market, and no one tool is right for every client. The important thing is that clients equip themselves with tools that will help them build lasting foundations and pillars of success, not temporary fixes that crumble at the first sign of wear.

Photo by Caleb Jones on Unsplash

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