What is a vendor management system?
Short answer
A vendor management system (VMS) is software for buying and managing contingent workers through staffing suppliers; in procurement, the same words often mean supplier management software.
Key takeaways
- “Vendor management system” has two meanings: in staffing and HR, a VMS manages contingent workers bought through staffing suppliers; in procurement, it often means software that manages suppliers in general.
- A contingent workforce VMS runs the worker’s lifecycle: request, distribution to staffing suppliers, selection, onboarding, time capture, consolidated invoicing, offboarding and reporting.
- A managed service provider (MSP) often runs the contingent workforce program; the VMS is the software it and the buyer work in.
- Contingent workers bring classification and equal-treatment rules, such as the IRS control test, the UK off-payroll rules and the EU temporary agency work directive; a VMS keeps the records those rules need.
- Vendor management software in the procurement sense holds supplier records and runs registration, qualification, referencing, performance, risk and renewal, and is chosen like any supplier management tool.
What does vendor management system mean?
A vendor management system has two meanings. In staffing and HR, a VMS is software for requesting, buying and managing contingent workers supplied by staffing agencies. In procurement, the phrase often means supplier management software, which holds supplier records and runs onboarding, qualification, performance and risk.
The two share a name and little else. A search for vendor management software returns both, and vendors of each use the same words, so the first step in any selection is to say which one you need. The table sets them side by side.
| Aspect | VMS for contingent workers | Vendor management software in procurement |
|---|---|---|
| What it manages | Workers supplied by staffing agencies, contractors and statement-of-work consultants | Suppliers of goods and services, as companies |
| Typical owner | Procurement (services or contingent labour category), HR or talent acquisition | Procurement, supplier master data team, compliance |
| Main records | Job requests, candidates, rates and mark-ups, timesheets, assignments | Supplier record, documents and certificates, questionnaires, scorecards, risk alerts |
| Typical integrations | HR system, identity and access, accounts payable, staffing suppliers | ERP or e-procurement, supplier portal, risk data providers, accounts payable |
| Service often bought with it | A managed service provider (MSP) running the program | Outsourced onboarding, screening or monitoring |
| Also called | Contingent workforce management, extended workforce, services procurement | Supplier management, supplier lifecycle management, vendor management platform |
If what you buy is people’s time through agencies, you need a contingent workforce VMS; if you manage companies as suppliers, you need supplier management software.
The discipline of managing suppliers itself, called supplier management or vendor management, is explained in the supplier (vendor) management guide. This page is about the software.
What does a VMS do for contingent workers?
A VMS manages the whole lifecycle of a contingent worker, from the hiring manager’s request to the end of the assignment, across all the staffing suppliers the organisation uses. Workday, which sells a VMS, defines it as software that manages the entire lifecycle of contingent workers, from sourcing and engaging through invoicing, reporting and offboarding, and notes that VMS platforms now often include statement-of-work consultants and outsourced services.
- Request: a hiring manager raises a request for a worker with the role, dates, location and budget, approved like any purchase.
- Distribution: the VMS sends the request to approved staffing suppliers, by rules on role, location or supplier tier, with the rate card that applies.
- Selection: suppliers submit candidates; the manager compares them, interviews and selects one, and the VMS records the agreed rate.
- Onboarding: the worker’s checks, documents, equipment and system access are tracked before the start date.
- Time and expenses: the worker records hours or milestones, the manager approves them, and the VMS applies the agreed rates.
- Invoicing: the VMS produces consolidated invoices from approved time, so accounts payable receives one invoice per period instead of one per agency.
- Offboarding: at the end date, access is removed, equipment returned and the assignment closed.
- Reporting: headcount, spend, rates, tenure and supplier performance across the whole contingent workforce.
The main benefit is visibility. Without a VMS, contingent workers are often bought by each department from its own agencies, at different rates, and nobody can say how many there are, what they cost or who still has access to the building and the systems. A VMS puts every request, rate and worker in one record.
What is the difference between a VMS and an MSP?
A VMS is software; a managed service provider (MSP) is a company that runs the contingent workforce program for the buyer. The MSP manages the staffing suppliers, distributes requests, checks rates and compliance and reports on the program, usually working inside a VMS. Some organisations run their VMS with their own team, others outsource the program to an MSP, and some vendors sell both: Magnit, for example, presents an MSP offer and a VMS side by side.
Whoever runs the program, the buyer keeps the decisions that matter: which suppliers are approved, the rate cards and mark-ups, the rules on assignment length, and who approves each request. A VMS makes those rules apply to every request instead of depending on each manager.
Why do contingent workforce programs need controls?
Contingent workers are not employees, and several sets of rules depend on keeping that distinction right. The examples below show why a VMS records role descriptions, assignment dates and determinations, not only rates and hours.
- In the United States, the IRS decides whether a worker is an employee or an independent contractor on the right to direct and control the work, looking at behavioural control, financial control and the type of relationship. Misclassification has tax consequences for the business.
- In the United Kingdom, the off-payroll working rules (IR35) changed on 6 April 2021: for public sector clients and medium or large private sector clients, the client decides the worker’s employment status for tax and issues a status determination statement giving its reasons.
- In the European Union, Directive 2008/104/EC on temporary agency work requires that agency workers’ basic working and employment conditions are at least those that would apply if the user company had recruited them directly for the same job, and that they are informed of vacant posts in the user company.
These rules belong to employment and tax law, and their application to a given worker needs advice in the country concerned. What the software brings is evidence: who requested the worker, for what role, on what terms, for how long, and which determination was made. That record is hard to rebuild once a department has bought workers outside the program.
What is vendor management software in procurement?
In procurement, vendor management software holds the supplier record and runs the supplier lifecycle around it, from registration, qualification and referencing to performance, risk and renewal: self-registration through a supplier portal, onboarding with approvals, checks of legal entity, tax and bank details, document and certificate tracking, questionnaires, performance scorecards and risk alerts, with the approved record synchronised to the ERP or e-procurement system that orders and pays.
Here the vendor is a company, not a worker, and the software serves the stages described in the supplier management guide. Many organisations start with the supplier module of their ERP or source-to-pay suite and add specialist tools for risk monitoring. A dedicated guide will compare supplier management software, the category this sense of “vendor management software” belongs to, and how to choose one.
How do you choose a vendor management system?
To choose a contingent workforce VMS, start from the workers you buy and the suppliers you buy them from, then test a short list of systems on your own requests. The criteria below are those that decide whether the program is used; the method of a software selection, with scripted demonstrations and total cost, is set out in the procurement software guide.
| Criterion | What to ask | Evidence to request |
|---|---|---|
| Worker types | Does it handle agency temps, contractors, statement-of-work services and independent workers, in our countries? | A demonstration of one request of each type |
| Supplier distribution | Can we set which suppliers receive which requests, and in what order? | The rule set configured on our supplier list |
| Rates and mark-ups | Are rate cards, mark-ups and overtime rules applied automatically, and flagged when exceeded? | A request that breaks the rate card, and what happens |
| Time and invoicing | How is time approved and turned into a consolidated invoice our accounts payable can process? | A sample consolidated invoice and its file format |
| Compliance records | Can we record status determinations, assignment limits and required documents per country? | The fields and alerts, shown on our rules |
| Integrations | How does it connect to our HR system, identity and access, and finance system? | Named connectors and a reference using the same systems |
| Program model | Can we run it ourselves, with an MSP, or both, and change later? | Contract terms on data ownership if the MSP changes |
| Data and exit | Can we export all workers, requests, rates and time in open formats? | Export specification and a contract clause |
Test rate-card enforcement and consolidated invoicing first: they decide whether the VMS controls spend or only records it.
Which vendors sell vendor management systems?
Vendors fall on each side of the two meanings. Specialist contingent workforce vendors sell a VMS, often with an MSP service; source-to-pay suites sell supplier management and, in some cases, services procurement or contingent workforce modules. The table describes several of them as their own pages present them, in alphabetical order. It is a starting point for a long list, not a ranking, and the author has not tested these products for this guide.
Disclosure: the author works as an Ivalua consultant. This comparison relies on public documentation and, where stated, first-hand use.
| Vendor | Meaning covered | What the vendor’s own page says |
|---|---|---|
| Beeline | Contingent workforce VMS | The workforce orchestration company for the extended workforce; its VMS manages the lifecycle of contingent workers, with statement-of-work spend |
| Coupa | Procurement supplier management | Supplier risk and performance in source-to-contract; services procurement in procure-to-pay |
| Ivalua | Procurement supplier management | Supplier management among the modules of its procurement platform |
| Magnit | Contingent workforce VMS and MSP | A contingent workforce partner offering a managed service provider program and a vendor management system |
| SAP | Both | Supplier management within SAP Ariba; contingent workforce listed as a related package |
| Workday | Contingent workforce VMS | Workday VNDLY, a VMS covering contingent workers and statement-of-work consultants |
Ask each vendor which meaning its product serves before comparing features: the same name covers two different categories.
Questions
Is a vendor management system the same as supplier management software?
Sometimes. In procurement, people often use “vendor management system” for supplier management software that onboards, qualifies and monitors supplier companies. In staffing and HR, a VMS is a different product that manages contingent workers bought through agencies. Check which one a vendor sells.
What is the difference between a VMS and an applicant tracking system?
An applicant tracking system manages candidates for permanent jobs, which the organisation hires as employees. A VMS manages contingent workers supplied by staffing agencies or engaged as contractors, including their rates, timesheets and supplier invoices. Some organisations run both and link them.
Who owns the VMS, procurement or HR?
It varies. Procurement often owns it because contingent labour is a spend category bought from staffing suppliers, while HR owns workforce policy and compliance with employment rules. Programs work best when both agree the rules and the hiring managers follow one request process.
Does a VMS handle statement-of-work services?
Many do. Workday notes that VMS platforms now often include statement-of-work consultants and outsourced services, where the supplier is paid for deliverables or milestones rather than hours. Ask for a demonstration of a statement-of-work engagement, from request to milestone approval and invoice.
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