How to Build a Category Strategy for Vendor Management Software

For startups and entrepreneurs, product/market fit means everything. It means being in a good market with a product that can satisfy that market.

Similarly, we (indirect procurement people) can always feel when the product/market fit of our non-employee workforce program is working. Internal customer usage is high, steady, and growing over time. Money from your stakeholders is driving up the volume and triggering discounts for the program. Your business is hiring people and getting more done. Business reviews are well attended, and your executive sponsor speaks at an industry function about how excellent their program is.

And we can always feel when our program fit isn’t working. Our stakeholders and suppliers aren’t getting value out of the program. Negative word of mouth is spreading, usage isn’t growing, quarterly business reviews are “blah,” and managers do what managers do: go elsewhere for solutions.

So, what drives a non-employee workforce program out of shape? In theory, we could correlate poor performance with either or all of the following: the team in charge, the vendor management software, or misalignment to market conditions.

This post assumes your vendor management software is underperforming and explores how to build a new category strategy to improve or replace it.

Market Analysis

●      Internal Market Assessment

●      External Market

●      Trends and Developments

Best Practices

●      Sourcing Models

●      Pricing Models

●      MSP Implementation Framework

●      Cost Savings Opportunities


●      A shortlist of who I know

Internal Market Assessment

Before looking outside the marketplace, pull some key data (outlined below) and partner with your stakeholders to review your current non-employee workforce program operations. Key stakeholders might include IT Application Support, HR Recruiting, and/or HR Operations, Legal, and Finance.

Plan to spend a lot of time completing this step and ensuring you have good clean data. Monitor the data run rates for 2-3 months to ensure there are few if any anomalies and gain confidence that your measurements are accurate.

Key Non-Employee Workforce Program data points

*Example Reports*

External Market

The marketplace for vendor management software is all about presenting transformative ways for companies to manage their non-employee workforces. Most, if not all, solutions on the market in 2020 offer a cloud-based management system that makes it easy for procurement, HR, IT, and finance stakeholders to scale and manage any shape and size workforce program. Most systems offer a bundled or unbundled suite of modules that can support your company’s total talent acquisition, non-employee workforce, statement of work, and independent contractors.

Some VMS providers have successfully negotiated partnership agreements with technologies used in HR (Workday), procurement (Scout), and finance (Oracle, SAP), where they can offer API access and nearly instant app optimization across your company architecture. If your firm is standing on the precipice of a digital transformation, you won’t want to miss these opportunities to begin or disrupt your transformation journey.

As you explore the marketplace and begin talking to VMS providers, bear these key differentiators in mind as you shop:

  1. Ease of Configuration
  2. Update releases: how is it done, cadence, and what support would you get
  3. Bundled and unbundled module offerings
  4. Is it easy to integrate with existing systems?
  5. Compliance—will it keep your company in sync and up to date with govt/regulatory policy?
  6. How comprehensive are the technical security safeguards?

Best Practices

Talent Sourcing Models

Several sourcing models are used globally, and most of them have been around since 2000, including what’s known as a “Human Cloud” that very early on enabled hirers and workers to transact work arrangements digitally. The fastest-growing segment of today’s gig economy is Human Cloud marketplaces, where talented people and businesses can find and engage one another in a work arrangement.

Staffing Industry Analysts estimate the total human cloud revenue worldwide reached $82 billion USD in 2017[1]. While the majority of this spend is attributed to business to consumer relationships (think Uber, Lyft, Instacart), there is a rapidly growing demand for business to business human cloud services—people we might classify as temporary workers, independent contractors, people sourced directly by companies, and statement of work consultants. One of the gig economy’s key drivers is remote work assignments—make sure you factor this into your research. Job requirements that are capable of being performed remotely are routinely broadcast across the marketplace for talent and make up the vast majority of demand from companies eager to reduce hard expense overhead: i.e., office space, equipment provisioning, badging, and travel. Ensure you partner with your facilities management, software procurement, and travel sponsor to ensure lower volumes on these things don’t trigger minimums or price hikes capable of offsetting all your hard work.

Ensure that your VMS partner is capable of facilitating the following kinds of engagements and filtering them through your worker classification policies.

Sourcing Models: Comparative Analysis

Pricing Models

The “percentage of spend” pricing model is the most adopted and preferred model I’ve seen. It is most prevalent in mature and (mostly) developed markets such as North America, Western Europe, Singapore, and China.

Managed Service Provider (MSP) Implementation Framework

The leading VMS tools on the market today are functionally the same—they all do the basics well. Where they differentiate are variances in end-user experience, support capabilities, integration capabilities, and global footprint.

Your MSP partner (if you have one) will help you estimate the time and cost of implementing a VMS solution, design a successful change management strategy (rooted in deep experience), and pull together a formal project charter that ensures a solid GO LIVE. They should be consulted before any next steps in the sourcing process, such as benchmarking and RFx.

MSP Implementation Checklist:

Cost Savings Opportunities

As is common with most indirect and direct categories, the number one driver of savings in a Non-Employee Workforce Program (inclusive of a VMS Tool) is spend volume. Maximizing spend throughput is a marathon effort, not a short-sighted sprint.

Be prepared to weather adversity that will impact your savings deliverables, such as unexpected cost offsets and unanticipated responses to incentives that can quickly vaporize any savings you achieve.

The key is to keep the big picture in mind, keep it very simple, and not force or rush any of your stakeholders to participate until you listen and understand all of their interests and how they make money (or spend money). Again, savings can quickly be offset by interests you don’t see, so take your time and go step by step in your discovery.

Here are a few savings opportunities your VMS partner (and MSP partner) can help you design, build, market, and implement:

Cost Savings Effort / Potential

VMS and MSP Suppliers

VMS and MSP Suppliers

[1] The Human Cloud, the Gig Economy & the Transformation of Work