What is the difference between an MSP and a VMS?

Discover the key disparities between Managed Service Providers and Vendor Management Systems.

The transition to a contingent workforce has significantly increased in recent years, posing a new and crucial challenge for businesses. With approximately 40% of all workers now part of the contingent workforce, effective management has become more important than ever. The key to success lies in managing this diverse workforce to ensure that the structures and processes maximize workplace efficiency and prove advantageous for the business.

Most contingent workforce management structures seem to aim to enhance visibility into the workforce while streamlining costs. Therefore, finding methods that increase visibility while maintaining a strategic cost structure is essential in all businesses.

An MSP and a VMS solution are two popular options for enhancing the contingent workforce structure.

As a business leader, HR professional, or manager, you play a crucial role in implementing the solutions that are changing the typical workforce methods today. Your strategies can enhance all business objectives. Read this blog to discover how to implement one solution today and make a significant impact on your workforce management. 

Understanding the role of MSPs and VMS

Managed Service Providers (MSPs) and Vendor Management Systems (VMS) are two distinct entities that play essential roles in the management structure of all businesses, especially staffing agencies. While both involve managing vendors and suppliers, their functions, processes and responsibilities differ significantly.

What is a Managed Service Provider (MSP)?

MSPs are external service providers responsible for managing and overseeing all aspects of a company's staffing structure and operations. They manage the entire staffing process, from initial on-boarding and recruitment to final billing and invoicing. MSPs also offer various services, including network management, security monitoring, data backup, and technical support. They act as an extension of a company, providing expertise and resources to ensure smooth and efficient operations.

What is a Vendor Management System (VMS)?

A VMS is a software platform that plays a crucial role in managing vendor relationships for businesses. It offers a cloud-based system with tools and functionalities to automate and centralize vendor selection, on-boarding, performance tracking, and payment processes. VMS solutions allow staffing agencies to effectively manage their vendor relationships, track performance metrics, and ensure compliance with contractual agreements, thereby enhancing their operational efficiency and business success.

An MSP and VMS offer very similar services and ultimately help all staffing agencies achieve the same thing, improve efficiency, and enhance visibility. However, the methods by which they do this differ significantly. MSPs manage the staffing process by using real human talent and direct support to oversee and manage the entire staffing process. In contrast, a VMS specializes in leveraging solely automated technologies to manage the staffing process. While both services overlap to a certain extent, they have distinct areas of expertise that empower all staffing companies to make decisions differently and ultimately leverage their business success differently. Understanding the difference between these two solutions allows companies to select which solution provides more benefits for the current state of the business as well as where it hopes to go in the future. 

The Advantages of an MSP

Partnering with an MSP offers several advantages for businesses. While these benefits are typically associated with a VMS, they are facilitated by the expertise and contributions of human workers. Some key advantages are:

Expertise and Experience: MSPs are specialized in contingent workforce management and will have extensive knowledge and experience in your field. They offer valuable insights, best practices, and guidance that managers may have yet to be able to access otherwise, ultimately optimizing staffing operations.

Cost Savings: By outsourcing staffing management to an MSP, businesses can reduce the costs associated with the hiring process. Relying on an external party to take on the hiring process allows managers to allocate their time more efficiently to focus on strategic objectives that are profit-driven. MSPs usually offer flexible pricing models, allowing businesses to pay for their needed services.

Quick candidate sourcing: MSPs have access to a vast network of talent and resources, allowing them to efficiently source and recruit candidates for various roles within a company. With their unparalleled expertise in contingent workforce management, MSPs can quickly identify and engage top candidates, saving businesses time and effort in the recruitment process and allowing managers to remain focused on driving profit. 

Proactive Monitoring and Support: MSPs continuously monitor the organization's IT systems, proactively identify and address issues, and provide immediate support when problems arise. This helps minimize downtime and ensures smooth operations.

Scalability and Flexibility: MSPs can easily scale their services up or down based on a company's needs. They can adapt to changes in technology, business requirements, and industry regulations. Whether a business is experiencing rapid growth and requires additional support or facing a downturn and needs to streamline operations, MSPs can adjust their services accordingly, ultimately enabling companies to cut costs and deploy employees only when needed. 

The Advantages of a VMS

Implementing a Vendor Management System (VMS) offers several similar advantages for businesses, such as:

Streamlined Vendor Management: VMS centralizes and automates vendor management processes, making managing and tracking vendor relationships, contracts, and performance easier. It eliminates manual tasks and reduces paperwork, reducing the potential for human error and improving efficiency.

Improved Vendor Selection: A VMS provides tools and functionalities to streamline the vendor selection process. The software considers qualifications and predefined criteria to compare proposals from vendors and compare various staff to make informed data-driven decisions. 

Enhanced Compliance and Risk Management: VMS helps ensure compliance with contractual agreements, regulatory requirements, and industry standards to ensure that not legal issues arise in the future. It provides visibility into vendor performance, monitors contract terms, and mitigates risks associated with vendor relationships.

Cost Control: VMS enables businesses to optimize vendor spend by tracking and analyzing vendor performance, negotiating better terms, and identifying cost-saving opportunities. It provides comprehensive capabilities to evaluate cost structure, thereby preventing overspending and improving budget management.

Data-driven decision-making: A VMS captures and stores data related to candidate profiles, job requisitions, hiring timelines, and other recruitment metrics. It can generate various reports to allow managers to interpret, analyze and visualize data trends and patterns to identify areas for improvement or best performing areas. 

Comparing the Different Pricing Models

MSPs and VMS providers often offer different pricing models to cater to the diverse needs of businesses. Here are some common pricing models for each:

MSP Pricing Models

Per Device/Per User: Businesses pay a fixed fee for each device or user that requires management and support.

Tiered Pricing: MSPs offer different service levels or tiers, each with a specific set of features and prices. Businesses can choose the tier that aligns with their requirements.

Pay-As-You-Go: Businesses pay for the services they use on a per-hour or per-incident basis.

VMS Pricing Models

Traditional pricing model: VMS providers charge a percentage of the total vendor spend managed through the platform

Subscription-Based: Businesses pay a recurring fee to access and use the VMS software and its functionalities.

Transaction-Based: VMS providers charge a fee based on the number of transactions or vendor invoices processed through the system.

Before implementing one of these solutions into your management process, ensure that you have thoroughly evaluated the structure that will work best for your company. Depending on your company's size or future growth plans, specific pricing structures will work better than others. 

Which is the Right Option for Your Business?

Both MSP and VMS offer a range of capabilities that can be tailored to your specific business requirements and goals. Before deciding, it's important to carefully evaluate and compare the advantages and flexibility of both an MSP and VMS solution.

When deciding between an MSP and VMS solutions, it's important to consider your company's values and preferences. If your business values direct collaboration, teamwork, and human expertise, an MSP could be the ideal solution. On the other hand, if you prefer a fully automated management process with direct control, a VMS might better suit your needs.

Ultimately, there is no one-size-fits-all solution; the right choice lies in your unique requirements, budget, operational challenges and strategic objectives. Consider starting by evaluating your current pain points and future aspirations to determine which option initially best aligns with your business needs. Next, speak directly with an MSP and VMS provider to see what they have to say regarding how they can augment your current management process. 

The Benefits of Combining Both MSP and VMS

In some cases, combining both MSP and VMS can provide the most comprehensive solution. This allows businesses to benefit from the expertise and support of an MSP while leveraging the streamlined, automated capabilities of a VMS. Combining both MSP and VMS solutions will offer significant benefits for businesses:

Comprehensive Management: MSPs provide expertise and support for managing staffing thereby, ensuring smooth operations and addressing issues that may arise. VMS, on the other hand, streamlines vendor management processes, improving efficiency and compliance. By combining both MSP and VMS, businesses can have a holistic approach to staffing management, covering both internal and external aspects.

Seamless Integration: MSPs and VMS can be integrated to work together seamlessly. By combining a technology platform with the help of crucial knowledge workers, staffing agencies will experience all the benefits of enhanced efficiency, including increased visibility and cost savings. This integration allows for better collaboration between companies and their vendors, enabling efficient communication, data sharing, and decision-making.

Enhanced Data Insights: Integrating MSP and VMS systems can provide businesses with valuable data insights. The combined data from both systems can offer a comprehensive view of staff performance, vendor relationships, costs, and risks. This enables businesses to make data-driven decisions and optimize their operations.

In sum, combining MSP and VMS may be the most strategic advantage as they provide businesses with a comprehensive management and vendor management solution, allowing for better integration, data insights, efficiency, and cost control.