Vendor management systems for staffing agencies: how a VMS works and how to win inside one

A vendor management system (VMS) is software that a client uses to buy and manage contingent labor from staffing agencies. Staffing Industry Analysts describes a VMS as a web-based application for procuring and managing staffing services and contingent labor, with order distribution, consolidated billing and reporting as typical features (see the SIA lexicon). For a staffing agency, the VMS is where the job orders arrive, where you submit candidates, and where your timesheets and invoices are approved. It replaces the hiring manager's inbox with a set of rules.

This guide looks at a VMS from the supplier's side: how the workflow runs, what it costs, and how agencies that do well inside VMS programs work differently. For how a VMS relates to the managed service provider that often runs it, see MSP vs. VMS.

How a requisition moves through a VMS

1. The manager creates a requisition in the VMS, usually against a rate card that sets the pay or bill rate range for the job title and location.
2. The requisition is released to suppliers, either to all approved suppliers at once or in tiers, with top-tier suppliers getting it first.
3. Suppliers submit candidates through the VMS within the submittal limit and deadline, with the proposed pay and bill rate for each.
4. The client or program office reviews and requests interviews through the VMS.
5. An offer is made in the VMS, and the supplier onboards the worker as its employee.
6. The worker's time is entered and approved in the VMS.
7. The VMS produces the invoice, often as consolidated billing, and the supplier is paid according to the program's terms, less any program fee.

Every step is timed and recorded. The VMS reports on each supplier's speed, submittal quality, fill rate and compliance, and those numbers decide which suppliers get the next orders.

What changes for the agency

The program fee and what it does to your margin

VMS and managed service programs have to be paid for. In a supplier-funded model, the program retains a percentage of the supplier's invoices to cover its costs (see this explanation of vendor-funded programs); in other programs the client pays directly. The percentage is set in the supplier agreement. Treat it as a cost in your markup, not as a discount you notice when the payment arrives.

How to calculate staffing markup shows how to build the burden figure used above. Also read the supplier agreement for payment terms, rate-card changes, volume discounts or rebates, and whether overtime and expenses carry the fee.

Supplier agreement clauses to check

Is a VMS program worth it?

A program gives you access to orders you could not otherwise see, often in volume, at the cost of rate control, direct relationships and a fee. Before bidding, estimate three numbers: the orders you could realistically fill in your categories, your net margin per hour after the fee, and the recruiter time each submittal takes. If the net margin does not pay for that time at your likely fill rate, a smaller number of direct clients may earn more.

Getting into a program

Suppliers are added when a program launches or when the client or MSP reviews the supplier base, which may involve a request for proposal. Staffing Industry Analysts has published supplier-focused research on how staffing suppliers can get on the list. Practical steps:

• Know when reviews happen. Ask clients you already serve outside the program when their supplier base will next be reviewed.
• Specialize. Programs add suppliers to fill gaps: a skill, a location, a hard-to-fill category. "We do everything" is not a gap.
• Have the paperwork ready. Insurance certificates at the required limits, diversity or small business certifications if you hold them, security questionnaires, and references; see staffing agency insurance requirements.
• Price for the program. Show that you understand the rate card and the fee.

How agencies win requisitions inside a VMS

Once you are in, the scorecard decides your share. Work to it deliberately:

• Speed. Set alerts for new requisitions in your categories and a target time to first submittal. Early, qualified submittals get reviewed while the manager is still engaged.
• Quality over volume. Submittal caps mean every slot counts. A submittal that gets an interview improves your ratio; one that does not uses a slot and hurts it. See how to improve submittal-to-interview ratio.
• Write submittals for a reader who has never spoken to you. The manager sees your candidate in a list. A short summary of how the candidate meets each must-have, with evidence from the screen, does more than a resume alone; the candidate submittal template has a format that fits in a VMS notes field.
• No duplicates. A program may reject a candidate submitted by two suppliers, and the duplicate can count against you. Get written consent for each requisition and check the candidate has not applied elsewhere; see how to avoid double submissions.
• Rate discipline. Submit at a rate that works under the cap. A candidate you cannot afford to place wastes a slot.
• Clean compliance. Onboarding documents, timesheets and invoices on time. Compliance failures show up on the scorecard too.

Working with the program office

The program office, run by the client or its MSP, is your main contact. Treat it as a client: ask for your scorecard regularly, ask what hiring managers say about your submittals, and raise problems such as a rate card below market before you stop submitting. Follow the program rules on contacting hiring managers exactly; programs can restrict it, and going around the program office puts your place in it at risk.

A supplier checklist for a new VMS program

• Supplier agreement read: fee, payment terms, rate card, contact rules, submittal caps.
• Program fee built into every bill rate you quote.
• VMS alerts set for your categories; a named owner for each requisition.
• Candidate consent per requisition, logged in your ATS.
• A submittal summary format that fits the VMS.
• Monthly review of your scorecard against the program's expectations.