RESEARCH & RESOURCES

Q&A: Vendor Management Systems Build on BI

Vendor management systems use business intelligence to help large companies track the many details associated with workplace staffing services.

One of the largest expenditures in an average enterprise today is the cost of third-party labor. A type of software called vendor management systems (VMS) can help large companies track the many details associated with its workplace staffing services, thus reducing those costs. As VMS software matures along with the growth of business intelligence, it offers increasing BI capabilities for delving into the rich troves of data companies collect on their third-party staffing services.

In this interview, we talk with Edward "EJ" Jackson, founder and president of Provade, a company offering an enterprise vendor management system that works with Oracle, about how a VMS works, who uses it, and the types of BI it can produce.

Jackson has 20 years of executive management, technology, and entrepreneurship experience. Prior to founding Provade in 2004, he served as a director at PeopleSoft. He has also worked at or consulted for Deloitte & Touche, Anderson Consulting (now Accenture), the U.S. Department of Energy, and Perot Systems.

BI This Week: Who is a vendor management system designed for, and how is it used?

EJ Jackson: VMS systems are designed to help large companies manage the procure-to-pay process of third-party labor.

VMS systems began to emerge just before 2000, mostly as niche players specifically built from scratch to address time-and-materials services procurement. They have largely evolved as standalone systems, with integrations into ERP systems (procurement, purchasing, human resources, general ledger, and accounts payable). VMS software is becoming more common as the market matures. Many companies have either built their own BI solutions, meaning severe limitations in capabilities, or purchased third-party BI solutions and tried to integrate them into their own niche software. This is an area where Provade has an advantage because of our Oracle foundation in both the transactional and BI platforms.

Who are typical users, and who within the enterprise usually makes the "buy" decision for a vendor management system?

The users may be employees of the company and the respective suppliers, but the system as a whole benefits the company overall by providing visibility, control, and management of one of the largest expenditures in any modern company.

The typical decision maker is either in either HR or procurement; however, it probably should be someone from the office of the CFO, because that's who often benefits the most. At this point, visibility and awareness at the CFO level of the value of a vendor management system level is still relatively low.

That helps explain a fact that you've mentioned before: that C-level executives are not actively purchasing vendor management systems. Is that because of the low level of visibility?

In many large organizations, the management of contingent labor has traditionally been viewed as an HR function -- either that or an annoyance that the procurement group must cope with. Despite the fact that the "spend" may have grown to hundreds of millions or even billions of dollars, the function has remained in HR and procurement. Contingent labor management was never a C-level topic of concern, and in many places that is still the case.

It's critical that executives have visibility into this area of spending, not just as a ledger item, but from a strategic perspective. Executives should be asking questions such as: Why are we spending so much, with whom are we spending it, what is our risk, and how can we rationalize our supply base?

Even if executives are not involved in the selection of the VMS solution, they need to have access to the data and analytics to make informed and strategic decisions.

What kinds of analytics are built into the system? Who uses those analytics, and how?

Generally speaking, vendor management system analytics can be grouped in three categories: transactional/operational, performance oriented, and those used for business insight.

In terms of users, Provade VMS in particular delivers analytics that span a wide range of users, from those who participate in the vendor management process end-to-end to decision-makers up to and including top management.

To delve a bit deeper into the three types of VMS analytics:

Transactional/Operational analytics: These kinds of reports assist participants in the business process in their daily work. Examples include missing timesheets, outstanding assets (such as laptops, smartphones, or badges), timesheet download, tenure, or on-boarding tasks. These reports come in two forms -- standard and embedded. Standard reports are the type that a user will choose to run ad hoc or to schedule, sometimes defining parameters to look at a specific line of business or segment of spending. Embedded analytics are specific to a transaction and intended to give the user insights toward a proper decision. For example, an transactional report might produce insights into the average rate paid for a given position at a specific work location. The numbers would be visible to the user at the time the requisition is created and the rate is set.

Performance analytics: Because a VMS enables the complete services procurement process through technology, it allows an enterprise to monitor quantifiable performance standards such as time-to-fill, response rate, turnover, worker performance (through surveys), and rate compliance. Performance reports are used to measure all players in the process, from the vendors to a managed service provider (MSP) and hiring managers.

Business insight: Finally, business insight analytics give users business intelligence on how the business truly operates and the opportunities to improve and get to best practices or at least cost and process improvement.

When we discuss a VMS, what is meant by closed-loop BI? How does the system connect real-time transactions from the vendor management system to leverage insights and facts?

Reporting traditionally has been viewed as the act of looking at a list of data and facts that happened in the past. With the advancement of reporting tools and their incorporation into the transactional systems that manage business processes such as services procurement, we now have the opportunity to use data proactively. We can see relevant data at the moment we are making decisions, and thus make informed decisions.

For example, when considering two vendors that have bid on the same project at equal price and similar methodologies, you need more information to make the best selection. By embedding real-time supplier performance metrics in the bid review interface, you can see that while vendor No. 1 has submitted a slightly lower price, they have a 40 percent higher occurrence of rate overrun than vendor No. 2. A VMS manages the end-to-end process and makes this real-time decision support possible.

How does Provade work? In particular, how does it connect with Oracle?

By integrating into our clients' Oracle and PeopleSoft infrastructure, we transcend the traditional VMS model of adding yet one more system for employees to learn and navigate. Because we share a common application and data infrastructure with our clients' own internal systems, we are an extension of the significant P2P investment they have made.

For example, with Provade, a purchase order integration is more than just the client passing us the purchase order number. We have the same accounting distribution table structure as Oracle, and thus can receive all line-level detail, supporting very granular time capture and enabling detailed internal costing.

Because we host our own full installations of Oracle's eBusiness and Enterprise suites, we are able to prove our integrations with our clients' systems without ever touching them. Our analytics engine is Oracle's Business Intelligence Enterprise Edition (OBIEE). Our clients who also run OBIEE can simply take our RPD (repository file), insert it into their own data warehouse, and have complete access to their services procurement data. No other VMS offers this level of native connection with Oracle enterprises.

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