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VMS Best Practices: a Guide to Getting the Most From Your Staffing Software

Steve Sazy is ATR International’s Senior Vice President of Strategic Accounts. He is a 30 year veteran of the industry and an expert in the evolution, adoption, and usage of VMS in the staffing industry. Steve consults with companies on a regular basis regarding best practices for implementing and optimizing a VMS tool.

AUTHOR: Steve Sazy

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VMS Terms………………………………………4 Introduction…………………………….………6 A Brief History……………………….…………7 Issues Addressed by VMS………..……….9 VMS Best Practices…………………..…….11 Summary…………………………….…………18

TABLE OF CONTENTS:

VMS TERMS: VMS – Vendor Management System This generally refers to the software that is implemented to facilitate the requisitioning and procurement process of filling temporary staffing requirements. A typical system tracks costs and integrates pertinent data into existing financial and human resources databases. VMO – Vendor Management Organization This is the body of policies and procedures that surround the VMS software. The VMO can either be managed internally by the client or outsourced to a third-party such as a Managed Services Provider (MSP). MSP – Managed Services Provider MSP refers to a company that may or may not partner with a VMS provider and maintains an onsite program management presence. Primary Vendors Refers to the direct contractual relationship between a consulting vendor and the end client. A typical vendor management program will have a number of primary vendors, but there also can be one primary vendor who can then use sub-vendors.

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Sub-vendors Staffing firms that are required to work through a primary vendor to provide services to the client. Vendor Neutral A program that is based on the client’s desire to have a “level playing field” for all approved suppliers.


VMS BEST PRACTICES





INTRODUCTION Vendor Management Systems, or VMS, continue to increase in popularity as more and more companies look to streamline processes and contain costs. When implemented in the right environments and with careful planning, a VMS can help corporations succeed in their contingent staffing programs.


“Global spend under VMS management is over $76 billion.” Source: Staffing Industry Analysts, October 25, 2011

Our many years of experience managing the staff augmentation needs of technology-based companies puts us in a unique position to evaluate emerging technology solutions such as VMS, present our clients with an overall picture, and help them determine whether it is the right solution based on their organizational structure and needs.





CHAPTER 1: A Brief History

The most recent numbers released by the Bureau of Labor Statistics showed a continuous upward trend in the use of contingent workers. 2.3% of private sector workers were classified as temporary labor, compared to 1.3% in the mid-1990’s. The increase in contingent worker usage makes contingent staffing one of the fastest growing industries in the country.

“2.3 percent of private sector workers are classified as temporary labor.” Source: Bureau of Labor Statistics

As companies increase their reliance on contingent workers, some have found themselves dealing with hundreds of vendors, leading them to seek solutions that would allow them to centralize their contingent staffing programs and control their contingent staffing spend. This created another growth segment within the already booming staffing industry: VMS.






VMS BEST PRACTICES

Vendor Management Systems originated in the procurement of business products and supplies. Ariba and Commerce One lead the way in the development of software products that helped simplify the purchasing process. As companies spent more on contingent workers, vendor management software providers started developing modules specifically designed to handle the procurement of contingent staffing services, allowing the automation of processes including the evaluating, sorting and tracking of job applicants and the management of invoicing and payroll.






CHAPTER 2: Issues Addressed by VMS

Too Many Staffing Vendors A recent study conducted by Staffing Industry Analysts, Inc. found that two-thirds of Chief Financial Officers did not know how much their companies spent on contingent staffing or how many staffing suppliers were engaged. On average, companies in the study utilized 36 suppliers, although some were found to have agreements with as many as 270 different suppliers. VMS provides companies with a tool to gain control of their supplier base. Administrative Burden An average of 36 suppliers translates to 36 different invoices, 36 different contacts, 36 different agreements and so on. The complexity of dealing with so many vendors allows room for costly errors in reconciling invoices. VMS providers promise to consolidate this and reduce administrative load and costs for their client companies. Unauthorized Expenditures Some companies became heavily reliant on the convenience of contingent staffing before they were able to establish an effective process for bringing on board contingent workers.






VMS BEST PRACTICES

For some, poorly defined processes lead to rogue spending. VMS provides documentation tools and consolidated reports that allow management to view their overall contingent staffing activity. Inability to Budget and Forecast Dealing with a high number of vendors with different pricing structures makes it difficult for companies to budget and forecast their contingent staffing spend. VMS provides companies with one interface and allows consistent and favorable pricing for skill categories. 1099 Compliance and Risk Management In the post-Microsoft “perma-temps” era, tracking contractors and their tenure has become more critical than ever. VMS provides an enterprise-wide tool that allows companies to track contingent staff including independent contractors, ensuring compliance with tenure policies and proper classifications.






CHAPTER 3: VMS Best Practices A VMS can succeed if administered properly and if the lines of communication are allowed to flow freely. We have compiled some VMS Best Practices from various authoritative sources to help your VMS initiative succeed. Include Hiring Managers, Vendors and VMS Staff in Planning The needs of all program participants -- the end user (the department that employs the contingent worker), procurement and HR, VMS program managers and staffing companies (who also represent the needs of the contractors) -- must all be balanced so that all parties involved benefit from the presence of the VMS Program. Careful planning that takes into account all the participants’ needs yields program success for the VMS provider, profitability for the staffing firm, and an efficient process for the client that results in hiring the best candidates in the quickest possible time and at the most reasonable rates. Select a Proper Number of Vendors VMS programs with a lengthy vendor list will most likely lose the






VMS BEST PRACTICES

interest of vendors who perceive the probability of making a placement as too low. Recruiting costs go up in parallel with worse fill ratios. For example, if there were 10 vendors, a fair share would logically average one placement for every 10 times a vendor recruits. Increasing that to 50 vendors means recruiting 50 times to make that same one placement. Too few vendors can also be problematic, so clients have to closely examine anticipated needs, factor in reasonable fill ratios to keep vendors interest, and determine the optimum number. Provide Means for Responsive Communication. A study conducted by NACCB found that 74% of companies utilizing VMS prohibit direct contact with their suppliers unless done through the vendor management organization. As a result, every party is negatively impacted in some way. Hiring managers are not able to effectively communicate their needs and staffing vendors are limited to a job description that may or may not tell the entire story. As a result, quality suffers. Clients who don’t allow communication often lose the interest of vendors that place great importance on directly understanding the needs of their client managers. These highly-service oriented vendors often provide valuable marketplace information to the






VMS BEST PRACTICES

hiring manager and usually produce quality candidates. Contrary to what many think, allowing controlled communication with hiring managers actually increases the VMS program efficiency because the candidate/client match is focused and the total time spent sorting and interviewing is shortened. Effective communication between staffing vendors and hiring managers is critical for program success. Encourage Quality Over Speed Too often, vendors skip important recruiting, screening and evaluation tasks in order to submit a resume before the requirement is closed or filled by a competitor. Allowing staffing suppliers sufficient time to submit candidates (48-72 hours) will result in them presenting you with “best fit” instead of “first fit” candidates. Limit the Number of Resumes Limits are a good idea for both clients and vendors. Limits prevent clients from being deluged with resumes and encourage vendors to be selective in whom they submit. A reasonable number of resumes per vendor depends upon the size of your vendor list, but one to three per vendor seems to work well. This allows the vendor to be selective and still realize an acceptable fill ratio – assuming that the client’s vendor list is not overly large.






VMS BEST PRACTICES

Provide Sufficient Detail on Job Requirements. Skimpy requirements produce skimpy candidates. Requirements should be thorough and complete regarding technical skills, application skills, interpersonal skills, position responsibilities, duration, option-to-hire, etc. When questions arise on requirements, hiring managers must respond quickly and effectively to the vendors. Respect the fact that the better vendors typically ask more probing questions, which allow them to better pinpoint the most appropriate candidates. Costs of VMS Participation A vendors cost of business usually increases when working within a VMS program. Program fees are usually borne by the vendors, which can add anywhere from 1% to 5% in costs. In addition to program fees, assorted discount programs are written into some VMS contracts, including volume discounts, early payment discounts, tenure discounts and right-to-hire conversion discounts, ranging from 0.5% to 5%. It is important to consider the effect of program fees and implement a fee structure that is in the best interest of all program participants. Adequate Skills to Review and Filter Resumes When a VMS Program Manager is not qualified to sort through resumes, the hiring manager is sometimes forced to review hundreds of resumes submitted by suppliers. This creates an






VMS BEST PRACTICES

increased workload for the hiring manager. Under-qualified managers often base their decisions on resume acronyms and buzzwords – which unfortunately can encourage some vendors to embellish resumes to secure an interview. Successful VMS programs have Program Managers who are well versed in all areas where


contract staffing is utilized, from administrative to IT functions. The VMS Program Manager or the MSP is a major factor on whether a VMS program will succeed. Obviously, VMS program design is at the core of a good program, but even the best-designed programs can fail when managed by under qualified or under trained staff. Provide Prompt Feedback Responsiveness to vendor submittals and candidate interviews is a key attribute for VMS success. Without feedback, vendors will not learn or improve from the experience so they can better

“63 percent of large buyers use a VMS, up from only 8 percent in 2004” Source: Staffing Industry Analysts, October 25, 2011





VMS BEST PRACTICES

serve their clients. Feedback must be prioritized. Don’t Negotiate Too Hard on Pricing By negotiating too hard on pricing and contractual terms, companies may discourage vendors from submitting their best candidates – which they will present to more favorable clients. Clients may also find their vendor list consisting of companies that compete on price versus quality – which ends up costing more in the long run. A balance between cost and desired quality is important. Track and Share Program Performance The good vendors want to know how they are performing so that they can improve. Likewise, they want their clients’ programs to succeed so that they succeed. The exchange of information and ideas provides invaluable insight. MSPs should freely share information about the program performance, forecasts and goals with the vendors. Consider Direct Agreements with Staffing Vendors The bankruptcy and subsequent liquidation of the parent company of the Chimes VMS exposed a weakness in the structure of many VMS Programs.






VMS BEST PRACTICES

Traditionally, a company utilizing the services of a VMS has a contract in place only with the VMS provider. The VMS provider, in turn, signs agreements with the staffing vendors. The staffing vendors rarely have an agreement directly with the client company to which they are providing services. This type of arrangement has inherent flaws. Utilizing the VMS provider as the only link between the client company and all of its staffing vendors creates unnecessary risk. With this sort of arrangement, any disruption to the VMS company can cause major problems with regards to the providing and tracking of staffing services. This isn’t to say that most VMS companies are not financial stable, well run companies. But the goal is to set up a program that exposes the client company to as little risk as possible. And utilizing the VMS provider as a “bridge” can be risky. The solution to this is for the client company to have direct agreements with each staffing vendor and a separate agreement with the VMS provider. This sort of arrangement reduces the risk for all parties involved and ensures minimal disruption to service should anything happen to the VMS provider. The Loss of a Trusted Partner CIO’s who participated in a NACCB roundtable cited that they






VMS BEST PRACTICES


work only with vendors who “know their stuff” and who have established a solid reputation in terms of delivering productive, high quality consultants. Yet many VMS programs, in the name of being “vendor neutral” do not divulge the vendor’s name when passing along submitted resumes to the hiring managers. On one hand, this procedure removes bias or favoritism; candidates sell themselves on their own merits. On the other hand, some hiring managers rely on the comfort factor in dealing with a trusted vendor with a good track record. It is important to find a balance.





SUMMARY VMS is a powerful tool that can assist companies in managing their ever-growing contingent staffing needs. It simplifies and defines processes for contingent staffing and allows companies to view and ultimately control their overall contingent staffing spend. However, the success of VMS depends on careful planning that includes all the players in the process (hiring managers, HR and procurement, and the staffing supplier) and controlled communication between a client and its suppliers. Remember, VMS is a tool that should be used to augment your current staffing program, not replace it.


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Have questions about VMS? Interested in partnering with a staffing firm that understands what it takes to thrive within a VMS environment? Contact Steve today at [email protected].


Connect with Steve Sazy

About ATR International, Inc. Founded in 1988, ATR International is a leading provider of IT consultants and enterprise-wide staffing services. We are headquartered in Silicon Valley and serve clients across the U.S. Learn more about ATR by calling 877-412-1100 or by visiting us at www.atrinternational.com.





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