What is the difference between a managed service provider and a vendor management system? In workforce management, a managed service provider (MSP) is an organization that runs a company's contingent workforce program for it, while a vendor management system (VMS) is the software the program runs on. One is a service with people and process, the other is a tool. Many programs use both, and many MSPs operate a VMS on the client's behalf.
The two terms are easy to mix up because they show up in the same buying conversation. This guide explains each, how they differ, how they work together, and how to decide what you need.
A note on terms: this article is about the staffing and workforce meaning of MSP. In IT, "MSP" means a company that manages technology for customers. Our guide on how to choose an MSP covers that meaning, and our page on top staffing MSP providers covers the workforce one.
What is a managed service provider in workforce management?
A workforce MSP manages the process of finding, engaging, paying and tracking contingent workers, such as contractors, temporary staff and agency workers. The client keeps its own direction of the work. The MSP runs the program around it.
Typical MSP responsibilities include:
- Supplier management. Choosing, onboarding and reviewing the staffing agencies that supply workers.
- Requisition handling. Receiving requests, sending them to suppliers and tracking responses.
- Compliance. Checking worker classification, contracts and required documents.
- Onboarding and offboarding. Getting workers started and closing out cleanly.
- Invoicing and payment. Consolidating invoices from many suppliers into one.
- Reporting. Spend, rates, time to fill and supplier performance.
What is a vendor management system?
A VMS is software for managing the contingent workforce and the suppliers behind it. It holds requisitions, approvals, supplier submissions, timesheets, invoices and reports in one place, so everyone works from the same record.
Common VMS features are workflow and approval routing, supplier portals, worker records, time and expense capture, rate cards, invoice matching, and dashboards.
How do an MSP and a VMS differ?
| Point | Managed service provider | Vendor management system |
|---|---|---|
| What it is | A service delivered by people and process | Software |
| Who does the work | The provider's team | Your team, or the MSP's team, using the tool |
| What you buy | Outcomes and administration | A platform and its features |
| Main benefit | Less effort, expertise and supplier leverage | One system of record and better visibility |
| Can it work alone? | Yes, with its own or a client's tools | Yes, if your team has time to run it |
| Typical pricing | A fee, often tied to spend or headcount | A license or per-transaction fee |
How do they work together?
The most common setup is an MSP running a VMS. The MSP configures the tool, manages suppliers through it, handles exceptions and gives the client reports. Some MSPs bring their own VMS. Others work in a platform the client already owns. Either way, the client should know who owns the data and whether it can move if the relationship ends.
The two terms can blur in one more way: some vendors sell a VMS bundled with services. When you compare offers, ask which parts are software and which are people.
Do you need an MSP, a VMS or both?
- Start with the size of the program. A small number of contingent workers and suppliers can often be handled with a VMS and an internal coordinator.
- Look at your internal capacity. If nobody has time to manage suppliers, handle compliance and reconcile invoices, a service helps.
- Think about complexity. Many suppliers, many countries or strict compliance needs push toward an MSP.
- Check your existing tools. If you already own a VMS, you may only need people to run it.
- Weigh control. A VMS alone keeps decisions in house. An MSP shares some of them.
What should you ask a provider?
- Which suppliers will you use, and how are they chosen and measured?
- Do you hold any commercial relationship with those suppliers that affects my costs?
- Which system will the program run on, and who owns the data?
- What reports will I receive, and how often?
- How do you handle worker classification and compliance?
- What are the exit terms, and how are records handed back?
Related reading
- what is an MSP in staffing: a fuller look at the staffing MSP model.
- what is a managed service provider: the IT meaning of MSP.
Where to go next
A managed service provider runs the program and a vendor management system holds it together, so the choice is rarely one or the other. To see providers of workforce MSP programs, visit our top staffing MSP providers page. If you sell workforce technology or services, request a free 100-record sample of verified contacts.
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