In a niche industry such as the one we operate in, it’s often easy to take for granted that everyone speaks the same language. However, for newcomers to the space, the terminology and the various abbreviations used can sometimes get confusing. This article attempts to assist by providing some basic definitions to the most common terms used in our industry.
Vendor Management System (VMS): In simple terms, a vendor management system is basically a software tool used by businesses to manage companies that supply labor to them. However, a better definition of a VMS is a sophisticated software program that provides precise monitoring, consolidated billing and detailed reporting as well as comprehensive analysis and visibility into all operations with labor suppliers (aka vendors). Most importantly, these capabilities significantly outperform manual processes and individual software systems by condensing the data into a single dashboard. Instituting a VMS can help to significantly reduce labor costs by helping to eliminate rogue spending and scope creep as well as saving considerable amounts of time and efforts by providing access to the best talent pool and significantly streamlining work processes.
Managed Service Provider (MSP): A managed service provider is a company that a business contracts to take on the responsibility of their contingent workforce program. A MSP generally handles everything from order fulfillment and sourcing, supplier management, reporting and monitoring of metrics, consolidated billing, as well as program adoption and compliance.
Statement of Work (SOW): SOW is a type of work arrangement that is defined by a specific scope, timeline, milestones, and deliverables. It is a formal document that provides direction to the vendor or contractor about how work should be performed. Often, it includes details such as quality and level of service expected, pricing, time schedule, and standard governance and regulatory terms and conditions. In these arrangements, clients often pay by deliverable or milestone but can pay on an hourly basis as well – this is referred to as services procurement since the SOW is only needed when applied to indirect spend categories.
Spend Under Management: Spend under management is the amount of billing that is invoiced by all suppliers for all work performed over the course of the year. In this industry, spend under management is a common measure of program size. According to industry experts, the average spend under management is between $50 and $100M per client, however, some larger programs can exceed $1B.