What is a Vendor Management System and How Does it Work?

Businesses across various industries have grown dependent on third-party partners to meet their operational needs, especially those that have allocated a budget for a contingent workforce. Effective management of contingent workers is essential, making a vendor management system (VMS) a vital tool. In this post, we discuss how a Vendor Management System works.

Managing Multiple Vendors can be Challenging

Many businesses use staffing agencies to source contingent workers, helping them to access hot skills, lower their workforce costs and access greater business flexibility and agility. Yet managing multiple vendors is far from easy. 

Despite the challenges that come with successful vendor management within your externally-sourced workforce, many organizations are still using manual methods such as spreadsheets, in-house databases or Share-Point-like websites to manage their staffing agencies.

These methods of managing your staffing agencies are simply ineffective. They are time-consuming, lead to human error, and leave your company with fragmented processes and no standardization of vendor rates across hiring managers.

The result? Your business has absolutely no visibility or control over its externally-sourced workforce. That’s where vendor management software will help.

What is a Vendor Management System?

A vendor management system is a web or cloud-based software platform that empowers your business to manage its staffing agencies through the centralization, automation and consolidation of data. 

By acting as a system of record for your company’s staffing agency processes, a VMS will give your business complete visibility and control of your staffing agencies and externally-sourced workforce processes. 

How Does a Vendor Management System Work? 

A vendor management system essentially works by acting as a centralized database for all of your contingent workforce management processes, storing all the information you need on one seamless platform.

It does, however, go above and beyond that. The functionalities of a VMS allow you to automate processes such as invoicing, process requisitions, process approvals, onboarding and much more to dramatically improve the accuracy and efficiency in which your company performs the processes related to managing vendors and non-employee workers.  

Below are some essential ways in which vendor management software operates:

1- Consolidate all of your staffing vendors

With a vendor management system, all of your staffing agency data is stored in one centralized location. That means your staffing vendors are consolidated in one place, for all hiring managers to access. 

Everyone within your organization will be working from the same information, no matter where they are accessing the data from. The result? Your company will gain clear visibility into staffing agency performance and you’ll be able to standardize staffing agency rates across your entire business. 

2- Manage your entire externally-sourced workforce

The vast majority of vendor management systems will only address hourly-based temps through staffing agencies. However, there are new VMS systems that will help your organization manage the process to source and pay all externally-sourced workers. 

That means with some vendor management software platforms, you’ll be able to manage all of your externally-sourced workers. That includes hourly temps, fixed-fee contractors, directly-sourced workers, independent contractors and even permanent hires through a staffing agency.

3- Automate your staffing agency processes

Unlike a spreadsheet where entering information and data is time-consuming and often susceptible to human error, a VMS will automate all of the processes associated with managing your staffing agencies and non-employee workforce. 

Through the use of a vendor management system, your organization will be able to automate processes such as invoicing, process requisitions, onboarding, process approvals and so much more. In turn, you’ll realize significant soft cost savings as a result of improved efficiencies.

Are all Vendor Management Systems the Same?

For organizations managing a contingent workforce, the choice of Vendor Management System (VMS) can define how effectively they attract talent, control costs, and scale operations.

Yet, too many businesses remain stuck with legacy VMS providers; platforms built decades ago, patched over time, and unable to keep pace with today’s speed of work.

Modern VMS platforms, by contrast, are designed for flexibility, user experience, and rapid integration. The difference between a legacy provider and a modern solution isn’t just about technology, it’s about business outcomes.

Challenges with Legacy Vendor Management Systems

Here are some of the challenges you may face with legacy VMS Providers: 

1 - Outdated Architecture creates a painfully slow experience

Legacy systems were built for an earlier era of contingent workforce management. They rely on rigid, monolithic architectures that are slow to update and difficult to integrate with modern HRIS, ERP, or ATS platforms. This creates long implementation timelines and costly customization projects. 

2 - Clunky User Experience makes navigation a mouse-clicker's nightmare

Users of legacy VMS platforms often complain about overly complicated workflows, poor mobile responsiveness, and interfaces that feel decades old. This friction leads to low adoption among hiring managers, suppliers, and workers.

3 - Limited Flexibility means the VMS dictates how your business runs 

Legacy platforms typically force clients into one-size-fits-all processes. Adjusting workflows, reporting structures, or approval chains often requires extensive (and expensive) development work. 

4 - Slow Innovation means you fall behind other agencies

Burdened by technical debt, legacy vendors struggle to roll out new features. Clients often wait months - or even years - for basic updates, typically paying extra for enhancements.

How Modern VMS Systems Change the Game

By contrast, here are some of the benefits of a modern Vendor Management System: 

1 - Cloud-Native, API-First Architecture

Modern VMS platforms are cloud-native, API-first, and designed to integrate seamlessly with the rest of your HR and finance technology stack. This allows for faster implementations, smoother data flows, and easy scaling. 

2 - Intuitive, Mobile-First Experience

Modern systems prioritize user experience. Hiring managers can approve requisitions, suppliers can submit candidates, and workers can track time all from a mobile device, removing friction and boosting adoption. 

3 - Flexible, Configurable Workflows

Instead of forcing every client into the same process, modern VMS providers offer configurable workflows. Whether you need bulk requisition bypass for high-volume hiring, complex approval chains, or specialized reporting, flexibility is built in. 

4 - Rapid Innovation

With modular architectures and agile development cycles, modern VMS providers roll out updates regularly. Features like AI-driven candidate matching, predictive analytics, and self-service reporting are standard, not “nice-to-have add-ons.” 

5 - Transparency and Control

Modern platforms put data in the client’s hands, with real-time dashboards, configurable analytics, and open integrations that ensure visibility across the contingent workforce lifecycle.

Business Impact: Legacy vs. Modern VMS

Companies with legacy VMS providers often face:

• Longer time-to-fill roles

• Higher costs due to inefficiency and customization fees

• Frustrated end-users caused by clunky workflows

• Lack of visibility into contingent workforce data

Modern VMS platforms, however, deliver:

• Faster implementations (measured in weeks, not months)

• Lower total cost of ownership through automation and fewer customization fees

• Better supplier engagement with easier, streamlined workflows

• Actionable workforce insights that drive workforce planning, compliance, and cost savings

In short, the choice between modern and legacy isn’t just about technology, it’s about whether your contingent workforce program becomes a strategic advantage or a constant headache.

Legacy VMS vs. Modern VMS: Quick Comparison

So, what does this mean for your business? 

If your organization is still operating on a legacy VMS, the consequences go beyond clunky software - they directly impact your bottom line, workforce agility, and competitive edge.

Here’s how:

• Higher Costs: Legacy platforms often require ongoing customization, manual workarounds, and extra support fees that drive up your total cost of ownership.

• Slower Time-to-Hire: Outdated workflows and long approval chains delay the hiring process, leaving critical roles unfilled.

• Poor Visibility: Without real-time reporting, it’s harder to track spend, monitor supplier performance, or stay compliant with labor regulations.

• Frustrated Stakeholders: Hiring managers, suppliers, and workers all struggle with complex systems that reduce engagement and adoption.

• Missed Opportunities: While competitors leverage AI-driven insights and automation, legacy users risk falling behind in workforce strategy and cost control.

By contrast, a modern VMS empowers your business to:

• Scale faster with flexible, mobile-first workflows

• Control spend through automation and transparency

• Engage suppliers and workers with user-friendly tools

• Unlock strategic insights that drive smarter workforce planning

In other words: moving to a modern VMS isn’t just an IT upgrade - it’s a business decision that directly improves efficiency, cost savings, and agility

Final Thoughts

The choice between a legacy and modern VMS is no longer just about technology - it’s about whether your contingent workforce program becomes a cost center or a competitive advantage.

Modern VMS platforms provide the agility, integrations, and insights that today’s organizations demand. They reduce costs, accelerate hiring, and deliver the transparency you need to make better business decisions.

 If you’re still relying on a legacy provider, now is the time to re-evaluate. Ask yourself: is your VMS holding you back - or helping you grow?

Learn more about the benefits of a Modern VMS: Free Guide

Learn more about the benefits of a modern VMS and what to look for when choosing the best VMS for your organization. Download our Free VMS Buyer's Guide here:

Discover the Power of Conexis VMS

Conexis VMS is built for organizations seeking to manage their contingent workforce. Here’s why we're the right choice:

• Fast Deployment: Get up and running in weeks, not months
• Transparent Pricing: Flexible pricing with no hidden costs
• White-Label Ready: Customize the platform with your brand
• Real-Time Insights: Make faster decisions with built-in analytics
• Audit-Ready Compliance: Store contracts, worker data, and rates in one secure hub

About Conexis VMS

Conexis is an award-winning Vendor Management System built for organizations that want the power of enterprise software without the complexity or cost.

Leveraging the latest technology, Conexis delivers the expertise, reliability and security of enterprise systems, while offering the flexibility, user friendliness and tailored, personal service you require. Learn more about our Company and why organizations Choose Conexis VMS. 

Looking to Switch Your VMS or Just Getting Started?

Whether you are looking to Switch your VMS, or just Getting Started, we are here to help. Contact Us for a Free No-Obligation Consultation, See how Easy Conexis is to use by taking a quick 2 minute Self-Guided Online Demo, or Book a Personal Demo Today! 

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