MSP vs VMS: Which is better for managing contingent labor?

By MBO Partners |

Updated Thursday, December 5, 2019

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Today’s business leaders are experiencing pressure to improve service, move faster, and find new skills in their workforce. With a need to shift strategies to better meet business goals, enterprises are increasing their dependence on contract, freelance, and gig workers—adopting a flexible workforce that is comprised of both full-time and independent talent.

Today, there are 41 million Americans working independently and the independent workforce itself is expanding three times faster than general employment. Businesses are increasingly recognizing that independent professionals not only provide cost savings, but that they are also a strategic resource for business growth.

Independent professionals offer access to much-needed skill sets, specialized expertise, and staffing flexibility. In fact, more than half of executives say the external workforce enables them to improve the overall financial performance of their company and is important in managing business costs.

Alongside the growth of the independent workforce is a suite supporting technology that enables businesses to find, attract, and engage independent professionals. Many tools today claim to manage independent workers quickly, effectively, and compliantly, though given the many facets of independent contractor engagement, it can be difficult to find one all-encompassing fix. Below, we explore two of the most common solutions: Managed Service Providers (MSP) and Vendor Management Systems (VMS) and explain why more and more companies are bypassing VMS and MSP to manage contingent labor inernally.

What is an MSP?

Businesses often turn to a third-party supplier such as a staffing agency, online marketplace, or SOW supplier when looking for independent contractors. A Managed Service Provider (MSP) acts as an outsourced agency that interfaces between the third-party supplier and the client’s enterprise managers in need of talent.

With hopes of eliminating the administrative burden of finding, engaging, and managing independent workers, many companies rely entirely on MSPs to set up and manage their independent contractor engagement program.
MSPs are geared towards a complex supply chain for enterprises, delivering value when it comes to reducing the cost of sales and providing compliance and consistency for managers. But when it comes to engaging an independent contractor—a supply chain of one—the scalability of a MSP can be a bit of a mismatch. MSPs are simply better suited to supporting a large supply chain rather than dealing with an individual.

What is a VMS?

A Vendor Management System (VMS) is a software system—typically cloud-based—that helps facilitate the process of contingent worker procurement and management. A VMS can collect requisitions from managers, automate transactions, and facilitate onboarding. A VMS stores and collects all this data, along with metrics such as spend tracking, candidate information, and payroll and invoicing, to help companies better manage their workforce.

A VMS is typically used to manage independent talent either by a company directly or by an MSP team on behalf of their client. Whereas an MSP is backed by people and supported by technology, a VMS refers to the technology used to engage and manage talent. The MSP may own a VMS or the client may use their own software. Keeping workforce data and metrics in a central, digital location helps to automate labor-intensive tasks such as time tracking and invoicing.

Why many companies are deciding to manage contingent labor internally

Forward-thinking enterprises have a greater need to source, engage, and manage highly-skilled independent professionals. Many businesses are therefore bypassing the use of a VMS and MSP entirely and choosing to manage their independent talent programs internally. This saves managers time and money as they don’t need to engage a third-party to perform recruiting functions. Instead, they can use internal staff or recruiters along with emerging technology, such as online marketplaces like MBO’s, to find independent talent with the right skills, correctly allocate spend, and adhere to compliance procedures.

In conjunction with this trend, independent talent—specifically those with in-demand skills—are increasingly using their established relationships to network into jobs. Marketplaces like MBO’s work to facilitate strong relationships between clients and talent, and as independent professionals begin to exclusively rely on marketplaces to find work, it will behoove enterprises to meet independents on their own ground. The way we work is changing and to compliantly engage and re-engage top talent, companies will need to actively evaluate and update their independent workforce management strategy.

Did you know that MBO’s cutting-edge, API-enabled technology suite is easily integrated with leading VMS, sourcing, and back-office applications to support an end-to-end solution from direct sourcing to independent talent payment? For more information, contact us today.