A vendor management system (VMS) is a collection of software programs that helps a business manage its relationships with actual vendors or employees, and it includes software to handle everything from the first contact to closing a deal and continuing with an ongoing relationship. Within any given vendor management system suite, there are specific modules that handle such processes as vendor onboarding, payments for vendors, and feedback from each vendor.
It’s no exaggeration to say that appropriate vendor management is one of the keys to success for any business team that works with procurement, and there are some considerable benefits to a good VMS system. First of all, it will allow you to establish sound relations with your suppliers or employees while using a minimal expenditure of personal and financial resources.
It should guarantee that goods are delivered to you and that services are rendered within an acceptable time frame. Since both parties should deliver consistent results, it allows to develop and maintain favorable customer and employee relationships. A good vendor management system introduces consistency and efficiency to the entire spectrum of vendor relationships, from one end to the other.
It is also possible to use automation in your vendor dealings and to analyze the performance of all your vendors, without having to make any kind of manual effort. If you choose to do so, you can even categorize vendors according to any factors you wish to choose, and then report on that through a number of customized reports. Finally, productivity for your business should be optimized, because you will be using a consistent procurement management approach that will secure goods and services at optimal prices.
How to Choose the best VMS
There are quite a few vendor management systems on the market today, and that might make it somewhat difficult to choose the one which is ideally suited to your business. In order to narrow down the choices, you should try and find a VMS system that can accommodate all these processes for your particular business:
- process purchase orders and purchase requisitions
- handle the entire end-to-end spectrum of vendor management, including onboarding, ratings, payments, etc.
- handle all processes related to invoicing
- seamless integration with your ERP suite and your accounting system
- has a good selection of reports and metrics specific to VMS processes
- should be able to work with your other procurement software and tools
- must be able to scale well when your business grows
- it needs to be user-friendly so that your employees will easily adopt it
- must be within your allowable business budget.
Features to Look for in a VMS
One of the main things you should look for in a good VMS package is a good onboarding module. Since this kicks off any relationship with the vendor or employee, you’ll need it to be a really good program that sets up a long-term relationship, and which facilitates all your business processes with vendors or employees.
To do this, you’ll need to register any new vendors quickly and efficiently, and you’ll need to be able to access all information about the individual immediately.
Another desirable feature you should look for is a comprehensive vendor rating system, according to whichever metrics are most useful for your business. Some of these might include policy compliance, delivery performance, timeliness, pricing schedules, and ease of communication.
You may also want to find a VMS package that has a strong program catering to vendor self-service. This will relieve you of the need to update their information whenever it changes, and that will save time for your employees.
Self-service programs generally also include the ability to track payment details and to provide alerts on orders and payments. Quick screening is another feature that may be important to you, because it will allow you to quickly access financial and credit risk data about any vendor you’re thinking of doing business with, or with which you already have a relationship.
You’ll also probably want to have a VMS package that includes a full-featured program providing corrective actions. For sure, you’ll encounter at least some suppliers who deliver subpar performance, and when that happens, you’ll want to initiate some kind of corrective action plan.
If even a corrective action plan fails to produce desirable results, you will also need a process that can offboard the supplier or employee efficiently, so that you can begin searching for a replacement vendor.
The Difference between a VMS and an MSP
Both a VMS and a managed service provider (MSP) can be extremely useful when managing your contingent workforce. A contingent workforce comprises a collection of individuals working externally from your business. This model has come into play in a major way with the recent advent of the global pandemic, because it has forced many workers to provide services from their homes, as opposed to reporting to work at a central location.
You can use these two different approaches to monitor and track the performance of your contingent workforce, although they go about it in different ways. With respect to managing a contingent workforce, a VMS can handle the procurement and ongoing management of all your contingent workforce, and it can include modules for supplier management, order distribution, consolidated billing, risk mitigation, headcount tracking, and optimal reporting capabilities.
A managed service provider is actually an outsourced organization that manages either some part of your worker recruitment or all of it. This provider will be responsible for the complete end-to-end management of your contingent workforce, beginning with supplier engagement to workforce planning, and all the way through to offboarding.
An MSP can also handle payroll processes, talent pooling, candidate marketing, and some other aspects of human resources which would normally have to be handled by your own internal department. The major difference between an MSP and a VMS is that an MSP is managed by people and receives the full support of technology, and by contrast, a good VMS consists of a software suite that you can make use of, but which lacks any kind of human involvement.
