by Patrick M. Connaughton

How to Select a Vendor Management System

Jun 15, 20095 mins

For enterprises doing outsourcing, Forrester's Patrick M. Connaughton shares practical advice on how to choose a vendor management system. Check out his tips on BI features, workflow, SaaS maturity, how to think long-term, and more.

Companies looking for a new vendor management system (VMS) have a wide variety of software solutions to choose from that, on the surface, appear to have very similar functionality. But, with so much commonality across the leading vendors, sourcing and vendor management professionals are better served focusing more time on the differentiating features like native business intelligence (BI) and advanced workflow tools in order to make the best purchasing decision.

BI, Workflow, And Service Catalogs

A next generation VMS should include BI capabilities like the ability to analyze past performance, respond to real-time business events, and run “what-if” scenarios to identify future opportunities. Whether the BI tool can be used for benchmarking based on industry best practices and internal goals is also an important piece to consider. And, for those who would rather have the VMS vendor churn through this analysis for you, you’ll want to assess those capabilities as well.

Workflow engines have also evolved over the years making them a more important feature to assess. As part of the VMS selection, test how easy it is to setup requisition approval steps and flexible alerts that get triggered when there’s a bottleneck. A more flexible the workflow setup means less customization is required, reducing the cost of implementation.

A VMS that includes a service catalog of predefined positions and skills can make order entry faster and ensure that you and your suppliers are talking a common language. Ask how much is set up that you can use out of the box and more importantly, what the process is for keeping the catalog up to date and making changes.

SaaS Maturity And Integration Capability Set The Architectures Apart

The underlying application architecture is sometimes overlooked during an assessment, especially when the solution is being deployed over SaaS and the selection is business-led. But, even with a deployment where the vendor hosts the applications, there are differentiating features to consider.

There are different phases of SaaS maturity that a vendor may be in and its important to understand the difference between SaaS and the old ASP model. ASPs typically have a dedicated server for each client, and the application can be customized at the same level of on-premise solutions. On the other hand, a true SaaS solution is designed to be extremely scalable, serving multiple clients in a single instance, and the emphasis is on configuration over customization.

When it comes to SaaS deployments, integration issues rank high among company concerns and can be a source of significant hidden costs. The extent that a VMS vendor has built out and refined predefined APIs to the most common HRIS, procurement, finance, and other systems will have a direct impact on the amount of time it takes to get the system up and running.

Financial Viability And Global Presence Determine Market Strength

Financial transparency and supplier neutrality are absolutely critical requirements for VMS vendors. A vendor should be able to provide detailed financial information for itself and its parent company if one exists. On neutrality, VMS vendors affiliated with a staffing company should be able to prove that a low percentage of staff are actually being sourced out of that firm to back up claims of total neutrality. Within the software, transparency around the supplier payment process is also important.

Also important is global scalability and support. While some VMS vendors may have end users located in a specific country, this does not mean they have global capabilities. A truly global vendor will have staff on the ground with expertise in local labor and tax laws, a “follow the sun” support model, and will support multiple languages in a single instance of the application.

Focus On Collaboration And Services Procurement When Assessing The Vendor’s Strategy

The long-term strategy is another area where many of the vendors take a different approach. You’ll want to find one that syncs up with your company’s overall vision in a few areas like supplier network and collaboration, support for the MSP role and holistic services procurement across contact types.

A VMS’ ability to provide the staffing suppliers with a usable solution is the bare minimum. Next-generation solutions provide the suppliers with interface kits, self service registration, training, extensive supplier-specific reporting capabilities, and the flexibility to configure the application to meet the unique operating models that exist for different professional services categories.

Some of the VMS solutions were not designed with the MSP in mind with no role-based security access and personalized views. If you plan on using one or more MSPs, you’ll want to look at things like how data access is controlled, and if custom reports are available that the MSP would need to be more effective.

A VMS should support not only time and expense but also milestone, unit of measure, service level, and custom rate contracts. This way, as the requisition process for new areas is automated, a single VMS can be leveraged and provide a consistent view across each category.

Patrick Connaughton is a Senior Analyst at Forrester Research, where he contributes to its offerings for Sourcing & Vendor Management professionals. He will be speaking at Forrester’s Services & Sourcing Forum, Oct. 6-7, in Chicago.

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