What Size of Business Do You Need to Make a VMS Worthwhile?

When it comes to managing a contingent workforce, cost-effectiveness and efficiency are crucial. This is where a Vendor Management System (VMS) comes into play. But the question that often arises is: "Do we have enough workers or transaction volume to justify the cost?”

Let’s delve into this to help you make an informed decision.

Understanding the Basics of a VMS

A Vendor Management System (VMS) is a software solution that facilitates the end-to-end management of a contingent workforce. From requisition and procurement to onboarding, time tracking, and offboarding, a VMS streamlines these processes, reducing administrative burden and increasing visibility. A VMS is widely becoming a minimum standard in some areas.

Six Factors That Affect Whether a VMS Is Worthwhile

1. The number of contingent workers

One of the most important factors in determining the need for a VMS is the number of contingent workers your organization manages. If you are dealing with a small number, manual processes might suffice. However, once you start managing dozens, hundreds, or even thousands of workers, the complexity increases exponentially.

As worker count increases, so can the work required to manage assignments, supplier activity, timekeeping, and records. But the point at which a VMS becomes worthwhile will vary by organization.

What to do: Consider how many workers you manage at one time and how frequently assignments begin, change, or end. A program with high turnover may involve more transactions than a stable program of the same size

2. The frequency of transactions

How many timesheets and invoices does your team process each month? How often do managers request workers or approve changes?

The frequency and volume of transactions such as requisitions, timesheet submissions, and invoice processing can overwhelm manual systems. A VMS automates these processes, ensuring accuracy and compliance. Volume of dollars spent is also a consideration, as VMS providers often charge by the amount of dollars running through the system.

What to do: Recurring transactions can make a larger difference to administrative workload than an occasional hiring request. Map the steps involved in each process and note where people enter the same information twice, chase approvals, or check details manually.

3. Program complexity

Multiple staffing agencies, departments, locations, and job categories create more relationships and processes to coordinate. Requirements such as credential tracking or assignment limits can add further work.

A smaller program with complex requirements may benefit from a VMS sooner than a larger program with a straightforward process.

What to do: Count the staffing agencies, departments, job categories, and approval paths involved in your program. Identify where teams follow different processes or struggle to see the status of a request or assignment.

4. Geographic spread

Managing a workforce spread across multiple locations or even countries add layers of complexity, including different regulations and compliance requirements. A VMS centralizes management, ensuring consistency and adherence to local laws.

What to do: List the locations where you use contingent workers and note any differences in hiring, onboarding, timekeeping, or documentation requirements. Assess how your team tracks those differences today.

5. Worker verification and compliance requirements

Some contingent workforce programs involve more work to verify candidates, track credentials, document approvals, and confirm that workers meet assignment requirements. If those steps are handled across emails and spreadsheets, it can be difficult to see what has been completed and what still needs attention.

Candidate fraud is another consideration. A VMS can support consistent submission and review processes and keep records in one place, but the organization and its staffing agencies still need appropriate identity verification and screening practices. The software alone cannot prevent fraud or guarantee compliance.

What to do: Document the checks required for each role, who completes them, and how your team confirms and records completion before an assignment begins. Include your process for reviewing candidate identity and credentials.

6. The cost of your current approach

Look beyond software fees. Estimate the time your team spends creating requests, following up with suppliers, approving time, reviewing invoices, and assembling reports.

Consider the cost of manual administration versus the cost of implementing a VMS.

If the administrative costs are high due to the volume of transactions and the number of workers, a VMS can provide significant savings by reducing errors and improving efficiency. Processing timesheets manually for a warehouse full of workers for example, can be very time consuming and costly.

Also consider where limited visibility makes it difficult to compare rates, monitor spending, or evaluate staffing agency performance. These are potential areas of value to assess - not savings you should assume will happen automatically.

What to do: Estimate the hours your team spends each month on requests, supplier follow-ups, timesheets, invoice reviews, and reporting. Compare that cost and effort with the full price of a VMS, including any implementation work your team would need to do.

Determining Your Volume Threshold

There isn’t a one-size-fits-all answer to how much volume justifies a VMS, but here are some general guidelines:

Small-Scale Operations (Up to 50 Workers)

Manual processes might still be manageable.
Consider a VMS if your growth projections indicate a significant increase in the contingent workforce.
A VMS for certain workforce populations can become extremely valuable even at smaller volumes – light industrial for manual processes, credentialing and compliance tracking for Healthcare workers or tenure management of IT resources are just some examples.

Medium-Scale Operations (50 to 200 Workers)

This is typically where the benefits of a VMS start to outweigh the costs.
The administrative burden and potential for errors increase, making a VMS a worthwhile investment.
Visibility and cost savings opportunities become significant.

Medium to Large-Scale Operations (200+ Workers)

A VMS becomes essential.
The complexity of managing a large workforce across various departments and locations makes manual processes inefficient and error prone.
Streamlining, vendor management, performance tracking, savings on invoicing processing, risk, quality, and compliance are all areas to tackle at the program becomes larger.

The ROI of a VMS

The return on investment (ROI) of a VMS can be substantial, especially when considering the following benefits:

Efficiency Gains: Automating time-consuming tasks frees up your HR and procurement teams to focus on strategic initiatives.
Cost Savings: Reducing administrative errors and improving compliance can lead to significant cost reductions.
Improved Visibility: A VMS provides real-time data and analytics, enabling better decision-making and strategic planning.
Compliance and Risk Management: Ensuring adherence to local and international labor laws reduces the risk of fines and legal issues.

Final Thoughts

Determining whether a VMS is worthwhile for your organization depends on a number of factors, including the size of your contingent workforce, the volume of transactions, and your administrative costs. As a general rule, once you start managing more than fifty contingent workers, the benefits of a VMS start to become evident. For larger operations, a VMS is not just beneficial but essential.

Investing in a VMS can transform your workforce management, driving efficiency, reducing costs, and providing the visibility you need to make informed decisions. Evaluate your current processes, project your future needs, and consider the long-term benefits to determine if a VMS is the right choice for your organization.

Learn more about the Benefits of a VMS

Download a copy of our free VMS Buyers Guide - it includes everything to know about a VMS and a checklist of all the questions you should ask a VMS provider; including the Top 10 Pricing questions.

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The Conexis VMS Difference

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