What Is a Vendor Management System (VMS) and How Can It Transform Your Business

By Brian Knapp, VP Digital Operations, Kelly

Most large organizations have thousands of contractors, consultants, and external workers contributing to their business every day—but surprisingly little visibility into who they are, what they cost, or whether they're being managed effectively.

I've spent the last 15 years in this space, from running MSP programs at MDI Group to leading analytics and infrastructure at Sevenstep, and now overseeing digital operations at Kelly Services. During that time, I've watched vendor management systems (VMS) evolve from basic temp tracking tools into something far more powerful—platforms that give companies genuine control over their external workforce spend and strategy.

If you're managing contractors, consultants, or any non-employee labor at scale, you need to understand what a VMS actually does and why it's become essential infrastructure for large organizations.

VMS and MSP: Understanding the relationship

VMS (Vendor Management System) often goes hand in hand with an MSP (Managed Service Provider).

A VMS is the technology—the software platform that provides a centralized, automated framework for managing vendors, contingent workers, and service providers across their entire lifecycle. Think of it as the system of record for everyone who works for your company but isn't on your payroll.

An MSP is the people and processes. At Kelly Services, we use VMS platforms to run programs for our clients. We're tool-agnostic, meaning we work with all the major providers—Beeline, Fieldglass, FlexTrack, VectorVMS. We select the right platform based on each client's specific needs and objectives.

💡Key Insight: VMS providers build software but don't typically deliver services. MSP providers like Kelly deliver services but don't build our own software. We focus on program expertise while partnering with technology companies that focus on platform development.

The evolution of VMS

VMS technology originated in the late 1980s and early 1990s when large employers started looking for better ways to manage temp staffing costs. One of the earliest systems was PeopleNet, developed by Geometric Results Inc. around 1993 to manage Ford Motor Company's contingent workforce program.

By the early 2000s, the market exploded as internet technology matured. Web-based platforms let hiring managers, program offices, and suppliers access a common system from anywhere. This era established the core VMS benefits companies still seek: better visibility, faster hiring, standardized rates, supplier performance metrics, and consolidated billing.

What's changed recently is scope and sophistication. VMS platforms originally focused just on contingent or temporary workers. Now these systems handle Statement of Work contracts, independent contractor compliance, freelance and gig work, and all the non-FTE talent supporting an organization.

The analytics have gotten significantly more robust, too. Most VMS tools historically provided transactional, backward-looking reports—what occurred, how much was spent, how many contractors. They're starting to add predictive and prescriptive capabilities, though none of the tools are fully mature in that space yet.

That's why we developed supplemental products like Helix and Sevayo Insights at Kelly and Sevenstep. These platforms ingest VMS data and provide deeper analysis, like predicting hiring patterns (you hire 30 people in this role every October, so you should prepare in August) and recommending whether to use contingent or full-time workers based on market data, past experience, and skills availability.

The pain points VMS solves

When you're managing a large external workforce without a VMS, you're going to encounter:

1. Lack of visibility

Contractors can be more expensive than FTEs depending on how you use them. If you need someone for three months, a contractor makes sense—you avoid the full onboarding, offboarding, and legacy costs of a permanent hire. But if that contractor ends up working for two years? You probably should have hired a full-time employee.

Without a VMS, you often have no idea this is happening. Contractors get onboarded across different parts of the organization without anyone centralized understanding where costs are going. It's not tracked as headcount, so it doesn't show up in the HRIS. We call this "rogue spend."

2. No centralized approval processes

When hiring an FTE, you open a requisition, get appropriate approvals within HR, then fill the position. A VMS forces the same discipline for contractors. Hiring managers can't just go out and engage someone without necessary approvals.

3. Compliance gaps

A VMS makes certain that background checks happen, contractual paperwork is in place, and independent contractor criteria are met. For one of our clients—a Class 5 railway—there's a specific background check required before any talent can be onboarded due to safety and security requirements. The VMS won't let anyone through without it, protecting the client from litigation and risk.

4. Administrative chaos

Think about a company with 10 suppliers getting 10 invoices every week or month. With a VMS and MSP in place, they get one consolidated invoice. We manage the invoicing, receipt of payment, and paying the suppliers. That's real time saved for finance teams.

5. No cost controls

A VMS creates competitive bidding. When there's a need for a contractor, the requisition goes to multiple suppliers simultaneously. Supplier A responds with a bill rate of $100. Supplier B puts their similar resource in at $95. You also get access to industry market data showing what the rate should be for that talent in a specific geography and skill level, helping you procure within the right range.

Core capabilities your VMS should have

At a minimum, a VMS needs to handle:

• Job requisition and approval workflows: releasing a job, getting it approved, fulfilling it
• Candidate sourcing and evaluation: soliciting candidates and comparing them
• Selection, onboarding, and offboarding: managing the full worker lifecycle
• Time, invoice, and expense tracking: contractors submit timecards, managers approve them, invoices get generated and paid
• Rate management: keeping rates in line with industry benchmarks or established rate cards
• Identity management: tracking who needs system access, email addresses, network logins
• Statement of Work contract management: generating RFPs, competitive bidding, tracking deliverables
• Performance management: scoring suppliers and candidates
• Reporting and analytics: customized reports, real-time dashboards, visibility into current contractor count and location

Bottom Line: When you think about it, a VMS performs the functions of maybe three or four systems that support full-time employees. That's a lot of capability in one platform.

How Kelly uses VMS in service delivery

All of our MSP programs use a VMS—no exceptions. Some companies still track contingent labor with Excel spreadsheets. We don't, because we can't deliver effective services that way.

The data from these systems feeds into our more comprehensive reporting tools, but our program management team uses the VMS itself to manage everything: requisitioning candidates, onboarding, all the tasks associated with contingent labor and Statement of Work management.

This data helps us guide clients on how to manage their workforce going forward. We can see where spend is concentrated, where contractors are located, how they're being used. That visibility lets us drive efficiency and meet each client's specific objectives.

Why managing VMS without an MSP falls short

You can run a VMS internally, but most companies struggle with it.

The person trying to manage it is often someone in HR or procurement focused on transactional needs: "I have an opening, I need a person." They're probably going to one or two suppliers for candidates. But without the structure and expertise, they can't do real comparison or optimization.

A typical MSP program has 10 to 12 suppliers depending on size. Larger programs can have 30 or 40, often organized by tier and skill discipline. By using an MSP provider, companies leverage our relationships across multiple programs. We negotiate better pricing, get stronger cost considerations, and provide greater support than an internal resource can access alone.

There's also domain expertise. Kelly runs several programs in oil and gas, for example. When an oil and gas company wants MSP services, we bring suppliers who understand that industry—knowledge an internal resource has likely never been exposed to.

The ROI metrics that matter

Operational Efficiency Metrics

• Time-to-fill and on-time delivery: how quickly can you get contractors in place
• Invoice accuracy rate: consolidated billing dramatically reduces errors and administrative load
• Vendor performance: tracking which suppliers consistently deliver quality candidates
• Support resolution time: how fast issues get addressed (we aim for hours, not days)

Financial Impact Metrics

• Budget adherence: VMS platforms can track purchase orders and only approve hours up to the authorized amount
• Rate compliance: making certain all engagements fall within established rate cards
• Volume discounts: maybe you hit $1 million in spend and get 1-2% rebated
• Tenure discounts: where a consultant's rate drops after a year
• Competitive bidding impact: naturally drives rates down when multiple suppliers respond to the same requisition

Cost Structure Note: Most programs are supplier-funded. The MSP passes the technology cost to suppliers, so it's not an expense the client incurs directly. It's a low-cost way to gain all this control and visibility.

What's next for VMS: AI capabilities and expanded scope

AI is exploding in the VMS space right now. At Kelly Services, we're building functionality that helps clients draft job requisitions, evaluate talent by ranking candidates based on experience and cost, and schedule interviews automatically without managers needing to coordinate with suppliers.

The transactional basics—releasing orders, filling them, timekeeping—that's table stakes now. The value is in tools like our talent decision engine that tells hiring managers where to focus, what type of resource to pursue, what to expect to pay, all before a requisition even gets released. Time saved early in the process compounds throughout.

I'm also seeing continued growth in Statement of Work management and support for the gig economy. More companies want to track project-based consulting work through their VMS, not just hourly contractors. And freelancers who aren't represented by traditional suppliers need a way to engage for one-off projects, then disengage cleanly.

Ready to implement? Focus on these fundamentals

Understanding what a VMS does is just the starting point. The real challenge is implementation—and that's where most companies either succeed spectacularly or waste significant investment on underutilized technology.

Success comes down to securing executive buy-in, selecting the right platform for your tech stack, training your teams properly, and treating the VMS as strategic infrastructure rather than a one-time procurement purchase. You'll need to consolidate supplier relationships, build compliance into every workflow, and leverage analytics to make predictive decisions about your workforce.

If you're exploring VMS solutions or trying to optimize an existing program, contact Kelly Services to discuss how our MSP services can help you get the most from your investment. We work with all major VMS platforms and bring decades of program expertise to help you achieve cost savings, improved compliance, and faster time-to-fill that well-managed VMS programs deliver.