Best vendor management system in 2023

1 December 2022 – 14 min read
External workforce management technology will be as confusing to the non-expert in 2023 as it was in 2022. A Vendor Management System (VMS) continues to be the most comprehensive answer to hiring and managing external workers.

In this article, we explore the features and benefits expected of a good VMS in 2023, highlighting the major differences between vendor options, and capabilities.

2023 will slide the workforce design dial ever further toward external workers

The pace of progression towards companies working with freelancers, independent contractors, and gig workers over hiring new permanent employees shows no signs of abating. All indicators suggest the present slowdown across the global economy is creating a perfect storm of conditions that favor the move to external workforce.
  • Talent shortages are growing
  • Available talent is shrinking
  • Businesses are reluctant to factor in long-term commitments into business plans
  • Salary levels are declining against inflation, meaning that take-home pay doesn’t go as far as it did previously–encouraging people to take side gigs and second (and third) jobs

Vendor Management Software has grown up

You can hardly blame vendors for the market confusion surrounding the external workforce sector. When the hiring of temps and freelancers went mainstream, indirect procurement teams were tasked to find ad-hoc talent from external sources. Technology emerged to replace spreadsheets used to manage supplier options, relationships, performance, payments, compliance, etc., and the Vendor Management System was born.

When the gig economy kicked in, organizations realized they could take on long-term and short-term contractors in a myriad of ways, bringing agility to their resourcing.

According to the latest stats from industry watchers SIA, 1 in 3 workers you meet in any corporation are employed by someone else–they just work ‘from’ there.

In the truest sense, a Vendor Management System exists to manage vendors, and solutions like SAP Fieldglass are examples of tools that are designed for use by procurement teams to manage not just indirect staffing.
Of course, for procurement leaders who are tasked with managing a mixed bag of talent resourcing vendors, a tool like this is ideal. (There are other makes, models, and suppliers of traditional VMS platforms I hasten to add!).

Contract management is at the heart of a VMS

The primary job of a VMS is to manage vendor contracts and support the entire procurement process of (what used to be called) contingent labor indirect sourcing. A VMS overcomes the procurement challenges surrounding supplier management, like finding the best vendors, the appropriate pay rates, managing vendor performance, dealing with contract renewals, paying suppliers, etc.

Want to gain more insight? Read our guide to VMS

Managing vendor relations

If you need to cast a wide net for talent across multiple disciplines in multiple territories, it’s highly likely you will need lots of vendors. It’s not uncommon for organizations to have over 100 staffing vendors on their roll. That means, at the very least, you will need to have conversations with 100 suppliers every year! Supplier communication costs time and money. All the better if you can automate most of it!
Think of a VMS as enterprise resource planning for a contingent workforce. Every aspect of relations with vendors, their candidates, department hiring manager correspondence and contracts, req-to-check, etc. is managed by a VMS.

It streamlines indirect procurement, in addition to driving out cashable efficiency savings through rationalization of resourcing options, normalization of payment terms, and exposes inefficient ‘hidden’ contingent hiring expenditure within departmental budgets.

Comprehensive dashboard

A good VMS has a centralized dashboard that’s able to automate most aspects of the vendor life-cycle. It meets the challenges of bringing uniformity, control, and method to maximize talent reach while minimizing the operating overheads of a large supply chain. It also helps to formalize (and largely automate) vendor communication through event-driven email automations.

Not all vendor relationships are equal. Vendor management software makes it easier to structure hierarchical supply chains – so you can offer opportunities out to tier-1 suppliers first before branching out to tier-2 and tier-3 suppliers.

Vendor compliance has risen up the agenda

Today, no contract management solution would be complete without a compliance management feature embedded within it. You will need to make sure your hires have been properly vetted for IC compliance, that they have the necessary insurance, and they’re signed off on policy training.

Make paying vendors a breeze

Central to successful vendor management is the simple management of payments. Not only are late payments detrimental for brand reputation, but they can also draw significant time on your schedule.

The best vendor management systems incorporate effective timesheet and expense sheet payment workflows that can be tailored to your sign-off approach. Additionally, smaller payments can be processed automatically if you prefer.

The rise of the Total Talent Management system

For many organizations, however, the agenda to source external workers has been supersized over the past decade. Businesses today, specifically HR and management teams, are thinking in terms of how to manage the entire External Workforce life-cycle.
The buzzword across the contingent workforce industry is Total Talent Management, and the ambition to bring internal and external workforce strategies together with one accountable and responsible team and resourcing approach to getting jobs done.
The fundamental problem most organizations face is a profound labor shortage that makes filling vacancies harder. In 2022, firms reached the realization that if they chose not to explore candidates from a wider geographic spread, their vacancies would remain open. Hiring managers are having to opt for candidates further afield to fill their vacancies and deal with the operational implications of doing so.

To overcome this shortfall, businesses are rapidly adopting alternative supply-chain and sourcing mechanisms—such as Direct Sourcing.  In 2020/21, contemporary Vendor Management Systems adapted to support these demands. In 2023, we expect businesses to increasingly rely on talent technology to act as their talent interface.

READ THE NEWTON DAY 2022 RESEARCH REPORT ON EXTERNAL WORKFORCE MANAGEMENT SYSTEMS

Vendor relationship management–one leg of a six-legged VMS pony

Selecting the right VMS for your business begins by recognizing that vendor relationship management is just one aspect of vendor management software systems.

They offer various approaches (besides vendor supply chains) to find and hire external talent. The good news is, the more advanced VMS should include these capabilities in their extended module options.

Selecting the best Vendor Management System for 2023

1. Cloud-native

Adopt one of the latest cloud-native VMS platforms and you will benefit from a system that offers support for unlimited users, unlimited desk requests, and unlimited storage. The thing that sets cloud computing apart is its scalability. But a cloud-native platform goes deeper than that.
Cloud giants like Amazon, Google, IBM, SAP, and Microsoft have invested billions into their digital ecosystems which has led to a huge peak in technology innovation, not also forgetting its impact on defacto industry standards that have helped democratize technologies for User Identity Management, authentication mechanisms, interoperability standards, etc.
Vendor management platforms created post-2012 have been able to capitalize on these advances. being faster to install, more frequent with their upgrades, and fully conversant with big data flat file data repositories and modern JSO data visualization tools. In short, there are plenty of good reasons to invest in a youthful VMS over one of the first gen market leaders that pre-date the cloud.

2. Natively mobile

In 2022, firms reached the realization that if they chose not to explore candidates from a wider geographic spread, their vacancies would remain open.
Hiring managers are having to opt for candidates further afield to fill their vacancies and deal with the operational implications of doing so. For Vendor Management Systems, this means providing more mobile enablement features and ensuring the majority of application features can be used on a mobile phone. This includes the submittal of documents, skills testing, candidate credential checks, video interviews, even analytics, and reporting.
Mobile computing reduces overheads on team training given that apps are inherently intuitive (you don’t need a user manual to learn them!) and users can self-learn how apps work with online video-based training courses.

3. AI-enabled

The role of AI will continue to grow in talent sourcing. Consulting firm PWC, suggests that AI could contribute up to $15.7 trillion to the global economy in 2030. Of this, $6.6 trillion is likely to come from increased productivity.

Broadly half of the organizations surveyed by McKinsey say they have adopted AI in at least one function and over half of those adopters claimed their use of AI reduced costs.

Whether it’s about testing coder skills, validating credentials, or vetting CVs, expect Artificial intelligence to be one of the big themes of 2022. AI technologies can cut data entry, displace manual procedures, and track performance, so you and your team don’t have to.

4. Powered by analytics and personalized data decisioning

The role of data analytics will continue to grow as a functional discipline of vendor management software products in 2022.
At one time, business intelligence was the domain of executive teams. Producing dashboards and charts was time-consuming and expensive, so only provisioned for the top table of organizations. Today, the pace of change in recruitment means that hiring managers, program managers, and suppliers— not to mention candidates—demand a constant feed of insightful data. This higher level of performance transparency keeps everyone on the same page and drives smarter decisions.
Use dashboards to look across the entire procurement process with real-time data feeds to tap into actionable insights that help your team to manage a vendor’s performance and manage contracts from initial signing and T&Cs to offboarding or extensions.

5. Brimming with bots

The best VMS solutions in 2023 are filled with intuitive software bots that guide users in completing tasks. It’s especially helpful for new users of the software, meaning less time goes into training. The steps of each task are fragmented into smaller blocks that make the exercise of entering key-fill data less taxing.

Wherever possible, underpinning every activity thread will be a series of software bots doing the heavy lifting—capturing data, making decisions, automating email workflows, checking answers to questions, and validating claims.

They can be used to automate approval processes, create and send emails to vendors and candidates based on timed events. They’re also great for resource tracking and onboarding processes.

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6. Serves the end-to-end external workforce management lifecycle

Today, various external workforce solutions provide much flexibility. Micro-task portals, such as Fiverr and Toptal, let hiring managers ‘shop around’ for the perfect gig worker for any given task.

Simplify VMS enables you to harness the perks of the gig economy by implementing a direct sourcing portal tailored for your business. Hire temps and talent to get specific tasks fulfilled against a secure Statement of Work contracting solution.

Having first found your talent, you will most probably need to perform background checks, onboard them, coach them in your policies, potentially supply them with equipment and logins, pay expenses, process time-sheets, manage payments, and so much more. You will need your vendor management software to support all these activities.

Final thoughts

If you’ve never had a VMS before, and you’re running a contingent program in excess of $100k, your business can expect to achieve cost savings of approximately 15% of total indirect staffing spend, according to historical data on similar programs.
Choose the right vendor management system and at the very least, you will be able to streamline business processes and increase your talent reach to fill vacancies faster.
In the best-case scenario, you will achieve cost savings while also bringing your business a new level in operational agility, gifting your leadership team with an external workforce management approach that cuts labor spend without adding into the mix the rigidity of full-time employment contracts and employment overheads (and risks).
Qualifying the best vendor management systems options for your business in 2023 will depend on your outlook and jump-off point:

Outlook

As we’ve already covered when it comes to expectations over what a VMS should do, clients have very different ideas.

Indirect Procurement professionals might be looking for a system to support vendor management processes, ensure vendor compliance, harvest and manage vendor data, pay vendors, and govern their vendor network.

Meanwhile, HR and External workforce project professionals perceive VMS as the gateway to the external workforce. In this case, vendor management features will need to go further and wider.

Jump-off point

There are very few greenfield sites when it comes to vendor management systems. Most mid-to-large organizations are already operating some form of vendor management software, even if that is nothing more than a spreadsheet-powered system.

That said, finding the best-fit solution is more complicated than installing brand-new software or rethinking your existing solutions. To get the most from your VMS, you must make sure it integrates with your incumbent systems and software preferences. Otherwise, you might find its performance compromised.

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