Vendor management is basically the processes a business uses to limit costs, improve service, and control risks to increase the overall value they receive from contingent workforce vendors. In recent years it has become an industry of its own with more and more organizations utilizing these procurement solutions in workforce management.
According to a report by the U.S. Government Accountability Office, 40.4% of the U.S. workforce consists of contingent workers. Overall, 90% of firms hire freelancers or independent contractors. However, it's still a relatively new concept in the history of the business world, making its rapid rise even more impressive. Here are three distinct points in the history of vendor management that have helped it become an intricate part of countless companies.
1. The Beginning
It's impossible to say when the exact date was, but it's reasonable to say vendor management services evolved from Vendor-On-Premises (VOP) concepts, which became popular in the late-1980s through mid-1990s. Businesses were looking for ways to reduce outsourcing costs and make them more efficient. Payroll was one of the first functions companies started outsourcing en masse because of the time and money savings in the long run. It's also easy to budget as businesses that spend between 15 and 30% of gross revenue on payroll are generally in good financial shape.
While the exact date is somewhat arbitrary, this is the year Michael Hammer and James Champy released their international bestselling book, Reengineering the Corporation. It was one of the first pieces to tackle the impact that changes technology and other advancements were having in the business-world.
“America's business problem is that it is entering the twenty-first century with companies designed during the nineteenth century,” wrote Hammer and Champy.
This was also the year Geometric Results Inc. (GRI) developed one of the first vendor management systems of significant value for Ford Motor Company. They would soon be bought out by MSX International, which would go on to have success in moving the industry forward.
A subsidiary of the Computer Horizons Corp. called Chimes was one of the first businesses to position itself as a “vendor-neutral” provider in the early 2000s. They were one of the first to realize that there was a market for not only licensing their software to customers, but also providing Business Process Outsourcing services along with it. By just giving the system to companies, you run the risk of them being incapable or unsuccessful at implementing VMS concepts. It's the “you can lead a horse to water but can't make him drink” syndrome. By being neutral they could be involved in the evaluation of the contingent vendors/employees and provide valuable information to their clients.
While there is certainly a whole lot more that's happened in the industry, these are a couple of the important moments that helped vendor management systems get to where they are today. As society continues to advance, so too will these services and concepts.