What is Vendor Managed Services (VMS)?

Vendor Managed Services (VMS) is a business model in which a client company outsources the responsibility of managing its contingent workforce to an external service provider. This arrangement typically includes the administration, procurement, and management of temporary and contract employees through staffing agencies. A VMS provider uses specialized software to automate and streamline the process, offering a centralized approach to managing various staffing vendors and workforce needs. Here’s a detailed look at the key aspects of Vendor Managed Services:


Key Functions of a VMS

  1. Vendor Selection and Management: A VMS provider handles the selection and management of staffing vendors, ensuring that they meet the client’s standards for quality, reliability, and compliance. This involves negotiating terms, managing contracts, and evaluating vendor performance.
  2. Workforce Procurement: The VMS system automates the process of procuring contingent workers by posting job requisitions, collecting submissions from vendors, and managing the selection process. It helps streamline the workflow, reduce hiring times, and ensure that the best candidates are chosen.
  3. Consolidated Billing and Payments: VMS providers facilitate consolidated invoicing and payments for all staffing vendors. This simplifies the financial processes for the client by reducing the number of individual transactions and providing a single point for payment.
  4. Performance Analytics and Reporting: The VMS offers comprehensive analytics and reporting capabilities, allowing clients to monitor and analyze spending, vendor performance, and workforce efficiency. These insights help in making informed decisions and optimizing workforce management strategies.
  5. Compliance and Risk Management: A VMS ensures compliance with various legal and regulatory requirements related to labor laws, contracts, and industry standards. It also manages risks associated with the use of contingent labor, such as co-employment issues and vendor reliability.


Benefits of Using a VMS

  • Cost Savings: By optimizing vendor selection and workforce management, a VMS can help reduce costs associated with hiring and managing a contingent workforce.
  • Increased Efficiency: Automation and centralization of processes reduce manual tasks, streamline operations, and shorten the time to hire.
  • Improved Vendor Performance: With performance tracking and management, a VMS ensures that staffing vendors maintain high standards, enhancing the overall quality of the contingent workforce.
  • Enhanced Visibility and Control: Clients gain better visibility into and control over their contingent workforce and staffing expenditures, leading to better strategic decision-making.
  • Regulatory Compliance: A VMS provider’s expertise in regulatory requirements helps ensure that the client company complies with employment laws and reduces potential legal risks.



  • Dependency on the VMS Provider: While a VMS offers many benefits, it also creates a dependency on the provider for critical aspects of workforce management.
  • Potential for Reduced Control Over Hiring: Some companies may feel they lose some control over the direct hiring and management of their contingent workforce due to the intermediation of the VMS.
  • Integration and Transition: Implementing a VMS can require significant effort to integrate with existing systems and processes, and transitioning can involve initial disruptions.


Vendor Managed Services provide a powerful solution for companies looking to efficiently manage a diverse and fluctuating contingent workforce, especially as the gig economy and contract-based work continue to grow.