What is a Managed Service Provider (MSP) and Vendor Management System (VMS) in temp staffing? If you work as a recruiter, contractor or hiring manager in staffing, you are bound to come across these terms. This article is a primer. You can also read our FAQ on Staffing MSPs to learn more.
A Managed Service Provider (MSP) in the staffing industry refers to an outsourced agency that manages the contingent worker (temporary staffing) program of a client company. Typically MSPs are found at large Fortune 1000 companies like Apple, Coca Cola or Citibank who might have thousands of contractors and hundreds of staffing agencies to manage. Although MSPs are large companies, at the client site, they exist as a small team of a Program Manager and 5-10 coordinators that manage all the different skill category requirements and staffing agencies. They ensure the smooth day-to-day operations of pulling requirements from clients, the preferred vendors submitting candidates, onboarding of selected candidates and the ongoing management of temporary workers at the client company for the duration of the contract.
PS: The term MSP is also used in non-staffing industries to refer to turnkey outsourced providers. For example- A company that outsources its IT support or Logistics to a services company may also refer to their vendors an MSP.
A Vendor Management System (VMS) on the other hand is merely a software system or website that the client company uses to run the contingent worker program. The VMS enables all the contingent hiring related transactions to happen online. It involves collecting the requisitions from the client's hiring managers, distribution of requirements (reqs) to staffing agencies, collection of candidate submissions from the agency, interview scheduling and coordination, job offers, onboarding, billing and timecards, etc.
Figure: The Client company's hiring managers input their open requisitions into the VMS system. These are transmitted automatically to the staffing agencies who submit candidates, get interview requests and other communication from it. The MSP team oversees this process and ensures vendors are doing their part. They also talk to hiring managers if the staffing agencies need clarifications, seek feedback, or to remind them to decide quickly.
Large companies always hired a part of their workforce as contractors or temps. The process of hiring these temporary workers was very cumbersome and inefficient. The client process would be typically something like this
A hiring manager desperate for temporary help but with no approval to hire permanent employees (headcount) would instead get budget approval to hire a temp
The manager would search for a staffing agency by calling around. Sometimes the company may have an approved supplier list.
The manager would call the Account Manager on the phone and explain the requirement or email/fax the job description
The staffing company's recruiters would source candidates and start sending the manager resumes by fax or email
The Manager would schedule interviews, select a candidate, negotiate a bill rate
If the staffing agency was new, they would sign a Master Services Agreement (MSA), and issue a Purchase Order (PO) for each contractor so the contractor could start work
At the end of the month the staffing agency would collect a timesheet from the contractor and send an invoice to the manager, who would approve and send to Finance to pay the agency.
The problem was that there was no consolidated requirements list from the client company and no way to predict who might have the next requirement. If the company was large, there might be hundreds of such requirements every day making this process inefficient.
So the staffing agency's sales executives would be roaming the halls of the company- hunting for prospects, dropping their cards, meeting potential client managers, taking them out to lunch or golf to generate business. There was also no way to objectively measure the quality of service that staffing agencies were providing or if the cost was justified as the buying was so distributed or required a lot of procurement overhead that slowed the hiring process.
The problems would manifest as
Hiring managers working with their 'favorite' staffing suppliers
Staffing agencies with aggressive sales people knocking doors annoying managers that had no need for staffing
Staffing agencies complaining about never hearing back about candidates they proposed
Managers complaining about staffing agencies not providing candidates on time, or charging very high rates or about submitting poor quality candidates
In the mid-90s, some of these largest companies decided to make this process more efficient by outsourcing the management of temp worker program to an outsourced agency in exchange for a little extra cost. Thus the Managed Services Providers (MSPs) were born.
A Managed Services Provider was the company (not a software) that specialised in managing these temp worker programs. They worked for the client and acted as an independent and unbiased program management interface between the client's hiring managers and the staffing agencies. MSPs also started leveraging software like the Vendor Management Systems (VMS) for automating transactions and to keep track of performance metrics.
MSPs managed the procurement process like umpires and coaches which typically included
obtaining the requirements from the client's hiring managers through the VMS
transmitting the requirements to the staffing agencies
ensuring the candidates are selected and onboarded
collecting timesheets, getting approvals, payments and paying the agencies
managing supplier performance with periodical scorecards
Oftentimes the MSP would conduct a joint clarification call with the manager with all the staffing agencies listening in to enable all the staffing agencies to get the same information from the client.
A number of the earlier MSPs were divisions of staffing companies as they were born out of staffing agencies that had the expertise to manage such programs. However most are vendor-neutral these days which means they are not allowed to favor their sister or mother companies in any way.
Some of the large MSP companies today are Agile-1, Allegis, Bartech, KellyOCG, Pontoon, Randstad SourceRight, ZeroChaos and Workforce Logic.
Click to see the list of top MSPs in the staffing industry
Vendor Management Systems (VMS) systems are software systems (mostly cloud based these days) that allow the MSP to run the client's temp worker program. It may or may not be owned by the MSP provider. The reason for this is that clients look at these two things differently. MSPs are selected for their Services and the VMS is selected for the software’s features. It is common to see a combination of a different MSP and VMS in companies.
A VMS system typically performs these tasks
Interacts with the client’s HR system to pick new reqs
Blasts these reqs out the staffing agencies
Tracks metrics like- how many days staffing agencies take to submit candidates, what their rejection rate is, if selected- do the candidates back out, whether the agency's rates are in the ballpark of the agreed to rate card, etc.
These metrics are reviewed often by the MSP and the badly performing agencies are warned/booted out and new agencies are brought in to replace them
The most common VMS systems these days include Tapfin’s Econometrix, Agile- 1’s Acceleration VMS, Beeline, Pro Unlimited’s Wand and Fieldglass’s Insite.
VMS and MSP programs are now said to exist in 60-80% of Fortune 1000 companies. They have been shown to increase efficiency, reduce cost, and increase compliance and spend visibility and companies have adopted them rapidly. Staffing agency supporters of the new MSP/VMS programs argue that the playing field is level and that the most competitive vendors are winning.
On the other hand, MSP/VMSs are despised by some staffing agencies who feel commoditized by the new system. Hiring managers are on a ‘do not contact’ list which means the recruiters can’t call the manager to seek feedback. This relegates staffing agencies to a commodity role of just collecting, screening and submitting resumes.