Vendor management systems: A guide for HR professionals streamlining contingent workforces

Contingent workers are valuable for building your workforce. They’re a quick, affordable way to fill skill gaps and facilitate growth.

However, it’s notoriously difficult to source and hire high-quality contractors. One Canadian survey found that 50% of respondents had issues hiring a contractor, and 64% said they didn’t trust them.[1]

Even after hiring the right one, collaboration can be strained by having no solid way to communicate with them.

A vendor management system enables you to reap all the benefits of contractors while leaving the tricky parts behind. This HR technology helps you sort through hundreds of possible contingent workers and source the best ones. 

After hiring, it further improves your experience by streamlining communication between teams and helping you manage tricky issues like compliance and classification.

This article discusses the benefits and top strategies for using a contractor management system. We also list our top software recommendations to get you started.

What is a vendor management system?

A vendor management system (VMS) is software that helps you manage the lifecycle of your contingent workers, including sourcing, engaging, communicating, invoicing, and offboarding. 

These tools help HR professionals manage costs, risks, and compliance on one platform.

It’s important to note that “vendor management system” can also refer to tools that manage the supply chain, purchase orders, supplier relationship management, and procurement, so it’s crucial to understand which tool you’re looking for.

The VMS software we’re discussing here helps HR professionals manage contingent workers, such as:

• Freelancers

• Contractors or contract workers

• Self-employed consultants

• Temporary workers

• Outsourced workers

If your company regularly relies on these workers, a vendor management system is a must-have for your HR tech stack. 

When combined with other tools, like candidate assessment software, it makes filling skill gaps and scaling your business simple and effective.

Why is a VMS (vendor management system) important to HR professionals?

Project-based hiring is accelerating at a rapid pace. 

More professionals are offering their contingent services, and more organizations are realizing the benefits of harnessing these affordable, adaptable workers.

This massive market is worth tapping into – contingent workers comprise between 30% and 50% of the workforce. 

However, you need the right strategy to take advantage of these resources, and experts recommend using software to integrate them into your company. 

A VMS is one of the top HR technology trends.

Frequently, companies use these tools with remote work technology, another rising trend, because many contingent workers are flexible and distributed.

A contract management system helps you manage, source, and select contingent and project-based hires to build better strategies to set up your workforce in cost-effective, efficient ways.

These vendor management software tools also help increase collaboration between employees and contractors and across projects and departments, improving overall efficiency and productivity.

For example, you can streamline your processes by integrating your VMS software with recruiting platforms so you can seamlessly flow from selecting a contractor to hiring them.

The benefits of vendor management system (VMS)

The best VMS software empowers HR teams to hire the right contractors efficiently, conduct risk management, and streamline the vendor management process. 

These tools manage compliance, reduce costs, and boost productivity.

1. Manage workforce compliance and mitigate risks

There are many complex rules surrounding the hiring and managing of contractors, including the onboarding process, approval workflows, and vendor relationship management. 

An important rule of compliance management is proper classification. Misclassifying a contingent worker as an employee can have detrimental effects. For example, a construction services company paid over $1.6m in damages due to misclassification.[2]

Vendor management system tools help you manage compliance and follow regulations, mitigating the risks associated with project-based workers so you can reap the benefits with none of the issues.

Mitigating risks is especially helpful when hiring international contractors because juggling compliance and laws between two or more countries can be tricky.

Using a contractor management system in combination with compensation management software also helps you pay each contingent worker what you owe them in compliance with their country’s laws.

2. Reduce costs 

Vendor management system software helps you sort through and choose the best contractors, enabling you to get the ideal price and quality. These tools also help you decide whether to hire a contractor or a new full-time employee.

Measuring costs and making strategic decisions is difficult when you don’t have a database for easy comparison.

For example, a glass and ceramics company adopted a cloud-based vendor management system and used it to build a personalized strategy. It focused on its specific challenges: better labor sourcing, increased workforce visibility, and risk mitigation.

Its VMS software helped it achieve $25.7m in cost savings in five years, filling 130 open positions.

3. Increase productivity by automating tedious, manual tasks

Your HR team spends much time on small, repetitive tasks. More than 50% of managers spend eight hours per week on manual tasks, and 25% spend over 20 or more hours.[3]

That’s an average of four hours per workday spent on tedious, manual responsibilities.

HR automation is essential in a modern landscape, especially when managing contractors. A lot of effort needs to go into classification and compliance. 

Automating these repetitive business processes saves time and reduces human error.

There are also several small duties that are better automated, such as sourcing, approvals, hiring, and training.

4. Supports scaling and growth

Human resources teams face a lot of pressure during organizational growth. Many companies scale with little addition to HR departments, so they manage more staff with the same number of HR employees. A vendor management solution gives you much-needed support.

Further, if a company grows rapidly, it has increasingly wide skill gaps. 

Contingent workers are a great way to address these gaps and assist scaling. You may only need a contingent engineer for six months until you flesh out the role and find a full-time employee, so a contractor is the perfect temporary solution.

Vendor management systems support this need so you can scale comfortably and focus your attention on your company.

It’s also worth noting that contractor management systems reduce costs. Managing costs is one of the top concerns when scaling organizations.

5 best VMS software

A contingent workforce is a valuable resource, and whether you’re just getting started or managing an ongoing one, let’s make sure you get the most out of it.

Here’s our list of the five top VMS systems available, including pricing, notable features, and pros and cons.

Factors we considered

Here’s a quick overview of what matters when choosing the best vendor management software:

• Data, analytics, and reporting: VMS systems with HR analytics software features enable you to collect and report on crucial contractor data

• Built-in compliance tools: These tools help you manage contingent worker regulations and laws, as well as handle global laws and tax structures

• Billing and invoicing: It’s important to have billing and invoicing features in your VMS because contractors are external workers whom you don’t manage through your payroll software 

• Integrations and management tools: You need to integrate your VMS with other helpful tools, such as applicant tracking systems and job boards

The best vendor management system tools: A summary

1. SAP Fieldglass: Best overall

SAP Fieldglass is a well-known name in the vendor management system market, and for good reason.

This software solution assists the entire contingent lifecycle, starting with streamlined procurement, going into assignment management, and ending with excellent offboarding software features.

It has an intuitive project management dashboard where you can find and engage all of your contractors. It also has smooth, organized invoicing.

SAP Fieldglass also includes employee self-service features that contingent workers love, such as comprehensive timekeeping.

Rating: 4.5 out of five (G2)

Pricing at time of writing: Available upon request

2. Magnit: Best user experience

Magnit delivers an excellent user experience alongside a solid worker experience.

This software goes beyond a straightforward interface and has features that enhance your experience, such as a branded UI, an easy-to-navigate system, deep customization for clients and workers, and personalized, task-based roles and permissions.

Magnit also uses machine learning in HR capabilities to help you source better contingent candidates.

Rating: 4.5 out of five (G2)

Pricing at time of writing: Available upon request

3. Shiftwise: Best for healthcare

Shiftwise is a platform designed especially for the healthcare sector, meaning that it can handle extremely delicate compliance and regulatory specifications.

This software is connected to more than 1,100 healthcare staffing solutions and fills clinical roles and laboratory, therapy, radiology, and nursing positions.

It also hosts a full suite of client services to help support you, such as account management, customer support, and implementation.

Rating: 4.0 out of five (G2)

Pricing at time of writing: Available upon request

4. VectorVMS: Best with multiple models

VectorVMS is a contactor management system that enables users to choose from several models to align their software with what works best for their organization.

These models include:

• Technology license: Just the software so teams can procure and manage talent

• Shared managed services: The software, plus strategic and admin support

• Managed service provider: The software, plus total management by a provider

VectorVMS also has streamlined integration with several applicant tracking systems to simplify and optimize your recruitment efforts.

Rating: 4.5 out of five (G2)

Pricing at time of writing: Available upon request

5. Conexis: Best for small HR teams

Conexis is one of the top vendor management systems for small HR teams.

Small businesses love how this software helps them manage their contingent workforce, with one review saying:

“Conexis demonstrated that they are specialists in smaller spending levels. They did the implementation for no cost, and we were up and running in two weeks.”

This tool also automates essential functions, such as procurement and payment of contingent workers and communication with the vendors that provide them.

Rating: Five out of five (Capterra)

Pricing at time of writing: Available upon request

5 best practices for leveraging VMS systems in your HR department

Browse our recommendations and start shortlisting your options – but as you decide, check out our top strategies for using your VMS software.

Strategies for using vendor management systems: A summary

1. Source contingent workers with a VMS and gauge their quality with talent assessments

You can get more value from vendor management system software when you combine it with other great tech. We recommend using it alongside talent assessment software.

Contingent workers are a quick, affordable way to fill skill gaps, but there are some drawbacks, like finding unreliable contractors who don’t have the right skills. 

You can eliminate this drawback by accurately and objectively gauging their skills with talent assessments. 

Here’s an example process:

1. Use VMS software to source professionals

2. Send these workers talent assessments to verify their skills

3. Invite the best talent to interviews

4. Hire your chosen contractors

5. Manage, pay, and communicate with workers through your VMS

The skills and quality of contingent workers can be tough to verify, but using skills tests enables you to recruit them with confidence.

For more information, read our article on using skills-based hiring to recruit contingent workers effectively.

2. Ensure global workforce compliance

Countless freelancers and contractors operate overseas, enabling organizations to widen their talent pools, find new skills, and secure professionals within their price range.

However, it’s critical to be careful when managing these international workers. 

Compliance is a tricky issue, and one mistake could be extremely damaging, but it gets even more difficult when dealing with laws from multiple countries.

The best vendor management systems help you manage local and global compliance.

Harness your VMS software’s capabilities to:

• Manage global compliance

• Handle invoicing requirements

• Support local currency billing

• Navigate employment laws

• Handle data regulations

Extending your reach to different countries is a smart move, and it would be a shame if confusing compliance held you back. Using a VMS, you can empower your business decisions and hire great international contractors.

3. Integrate your systems to create complete workforce visibility

Many organizations have a blended workforce, meaning your company’s entire workforce includes many professionals, including full-time employees, marketplace sellers, contractors, and even AI bots.

They need a customizable, user-friendly vendor management platform with vendor data and management tools.

You need a centralized location to oversee and manage your entire workforce, no matter which type of worker they are. This way, you have crucial visibility and can monitor compensation, development, and productivity.

Connect your VMS and human capital management (HCM) solution to create complete workforce visibility, eliminate siloed data sources, and help your HR team better plan their employee makeup.

This strategy helps you seamlessly integrate your data and get a holistic view of every valuable member of your company.

However, it’s important to remember that not every vendor management system integrates smoothly with HCMs, so this should be a top consideration as you browse around and make your final decision.

4. Centralize, analyze, and leverage all workforce data

After you’ve connected your platforms and created a single source for your workforce, it’s time to put your data to work.

Integration isn’t just about convenience. Having all your data in one place enables you to analyze employee and contractor data and make better decisions across your workforce.

Here are a few integrated vendor management system examples for getting the most out of your data:

• Use your VMS contractor database with your talent assessment candidate results to spot top performers and rehire them

• Use your VMS to discover which contractors are too expensive compared to performance, and then reduce spending on them in favor of more affordable but skilled workers

Agile strategies enable you to continuously improve vendor performance, reducing costs and increasing efficiency.

To simplify this process, link this data to a detailed HR dashboard.

5. Harness AI and automation in your VMS 

Take advantage of automation and AI in HR to make handling contractors easier and more efficient. Using automation reduces human error and ensures small details, like regular follow-ups with contractors and their vendors, don’t slip through the cracks.

AI can deal with the following functions and send you notifications:

• Screening based on contractor rates

• Predictive analysis

• Global compliance checklists

• Sending vendor onboarding information

• Small, tedious tasks to increase productivity, such as quick messages

When these tools handle small, manual tasks, they improve productivity, reduce errors, and give you more time to build relationships and make strategic decisions.

For more information on this topic, check out our blog post on recruitment automation software.

3 examples of companies succeeding with VMS software

The best VMS software can transform your contingent worker experience, reducing costs and streamlining management. 

But let’s do more than talk about it – here are three real-life vendor management system examples to inspire your next strategy:

1. Toyota

2. Australian Taxation Office

3. CenterWell Home Health

1. Toyota

Toyota, the well-known automotive brand, relies heavily on contingent labor to achieve its business goals. However, it discovered a large roadblock in its contingent workforce strategy – a lack of total visibility.

It also realized it had no consistency and standardization between repositories and no risk and compliance monitoring system, which resulted in inconsistent contracts and rates.

Toyota found a reliable vendor management system that solved its primary issues and provided the needed automation and detailed data capture. It enhanced the company’s hiring strategy, reducing time-to-hire and increasing access to high-quality talent.

Here are the quantifiable results:

• $620,000 in direct sourcing cost savings

• 35% conversion rate of positions

• 13% increase in diversity spend

• Decreased time-to-fill by 18 days [4]

2. Australian Taxation Office

The workforce of the Australian Taxation Office (ATO) is complex, to say the least. Its HR professionals must handle employees, temporary staff, external workers, and service providers.

It must also meet strict compliance requirements for how it manages its people because it’s a federal government agency.

This organization adopted VMS software to create templates to manage its compliance needs safely and effectively. In addition to handling compliance, the ATO wanted to enhance visibility into its external workforce and costs and create a more seamless workflow.

ATO saw immediate, impressive results:

• Data transparency that improved strategic decisions

• Increased worker engagement, retention, and performance

• Improved accountability throughout the procurement process

• Ongoing cost reductions

The Australian Taxation Office sees cost savings of about AUD 210K per month after implementing a VMS system and its new contract arrangements.[5]

3. CenterWell Home Health

CenterWell Home Health, a home health services provider, relies on a large contingent workforce to provide care for its clients.

This company identified problems with its contingent strategy, like driving cost savings while maintaining high-quality contingent work and patient care. It also needed standardized practices and better collaboration and communication.

CenterWell Home Health found a contractor management system, enabling it to strategically manage its external workforce and strengthen its compliance.

Here are some of the highlights of the results:

• More than 420 contracts filled in one year, 70% of them registered nurse positions

• 28% reduction in time-to-fill

• 50% increase in diversity spend

It also harnessed data from its performance management systems to optimize vendor choices, sourcing contractors from the best suppliers.[6]

Watch your contingent workforce shine with a vendor management system

Taking advantage of a contingent workforce is a winning strategy for your organization, and you can fully reap the benefits with a vendor management system.

A sophisticated, automated system deals better with risky issues like compliance and regulations. The same goes for tedious tasks like invoicing and communication.

When you streamline these processes, your team can focus on hiring skilled professionals and maintaining strong relationships with them.

For more insights on how to verify these skills, read our guide on candidate assessment software.

Looking to get started right away? 

Watch a live demo of TestGorilla talent assessments, or sign up for a free account today!

Vendor management system FAQs

To finish up, let’s review a few frequently asked questions about vendor management systems.

What is contingent workforce management?

Contingent workforce management is the procurement and engagement of non-permanent workers, such as contractors and freelancers.

Vendor management systems are a key component in this management, helping you hire better project-based workers and manage them effectively.

What is a vendor management system in staffing?

A vendor management system’s staffing consists of sourcing, tracking, and recruitment functions.

However, functionality goes much further, helping you communicate with contingent workers, manage their invoices, and monitor their data.

What is an example of a vendor management system?

The most well-known vendor management system is SAP Fieldglass, but many more are available on the market.

Other popular vendor management system examples include Procurify and Gatekeeper. However, these well-known tools are for managing suppliers instead of contractors.

Who needs a vendor management system?

Most companies that handle many non-permanent workers, such as healthcare companies, should invest in a high-quality vendor management system as part of their ERP system.

We recommend assessing your contingent workforce processes and running a risk assessment to check for bottlenecks, recurring issues, and inefficiencies to determine your organization’s needs.

Sources

1. Olson, Jeri. (April 11, 2022). "Finding a Contractor Proves Difficult Task for Canadians". Service Line Warranties. Retrieved January 25, 2024. https://servicelinewarranties.ca/finding-a-contractor-proves-difficult-task-for-canadians/ 

2. "IC misclassification: Construction services contractor pays more than $1.6 million". (August 16, 2023). Contingent Workforce Strategies. Retrieved January 25, 2024. https://cwstrategies.staffingindustry.com/ic-misclassification-construction-services-contractor-pays-more-than-1-6-million/ 

3. “Top Findings from Our State of Workflow Automation Survey”. (September 4, 2018). Formstack. Retrieved January 28, 2024. https://www.formstack.com/blog/workflow-automation-survey 

4. "Toyota Achieves Unparalleled Workforce Visibility with Magnit". (June 22, 2023). Magnit. Retrieved January 25, 2024. https://magnitglobal.com/us/en/resources/knowledge-center/case-study/toyota-achieves-unparalleled-workforce-visibility-with-magnit.html 

5. “The Australian Taxation Office Achieves Improved Visibility into Its External IT LAbor Hire Engagements”. (2016). SAPFieldglass. Retrieved January 28, 2024.https://cdn.featuredcustomers.com/CustomerCaseStudy.document/sap-fieldglass_australian-taxation-office_49484.pdf 

6. "CenterWell Home Health Transforms Contingent Workforce with RightSourcing". (June 1, 2023). Magnit. Retrieved January 25, 2024. https://magnitglobal.com/us/en/resources/knowledge-center/case-study/centerwell-home-health-transforms-contingent-workforce-with-rightsourcing.html