As more organizations adopt Vendor Management Systems (VMS) to source and manage contingent workers, smart procurement professionals are eliminating the use of purchase orders (PO). How is that possible? Many of us have worked for companies in which an “after the fact PO” was grounds for dismissal! Without a PO, how will expenditures be controlled?
Let us look at how the VMS renders the PO system redundant.
Financials transactions of most large companies are supported by an Enterprise Resources Planning (ERP) system, and purchase orders are a critical component of how ERPs work. The purpose of a PO is to ensure that the goods or services being purchased have been fully authorized and the funding exists and has been allocated for those expenditures. The specifications of the services to be provided by the supplier must be verified to ensure that they fulfill all contractual terms before a payment can be made. With an ERP program, it is not possible to completely control the assignment, and have the performance parameters of the program tracked automatically.
Complete Control: The raison d’etre of a VMS is enterprise-wide visibility and control. The best VMS systems establish workflows and business rules that ensure strict adherence to all required process steps. With a VMS in use, job orders cannot be issued without receiving needed approvals. The VMS prevents the creation of a worker timecard or approval of the supplier’s invoice until required activities have been completed. It can completely manage the assignment of tasks as well as the quality of the deliverables and link them to payment.
Reflects Business Realities: The procurement and management of personnel and services introduces levels of complexity not addressed through traditional purchase order processes that were designed to acquire goods. Market rates are based on skill and location. Hundreds of laws govern the workers’ management and compensation. The “product” can leave at any time without notice. In fact, once the resources have been sourced the real challenges are just starting! A VMS can be configured to accommodate the operational differences that exist across locations and functions while ensuring complete compliance with federal, state, industry and corporate laws and policies. The VMS should ensure adherence to all procedures for onboarding. These typically include the allocation of assets (facilities access, equipment, system access using logins, badges etc.) all mandatory training and orientation and all compliance requirements such as drug tests, background checks, work authorization verification. The VMS should serve as a repository for associated documentation that must be completed prior to work commencement. It is equally important to manage the departure of workers. VMS systems will drive the offboarding process, recovering assets, terminating access and determining eligibility for future assignments. The best VMS systems automatically register these former workers into an alumni system so that they can automatically considered when job or project requirements are issued.
Assignment Control: Your VMS system should eliminate budget overruns. The actual spend can be tracked against a budget, reminding the user of the remainder at every juncture at which payment can be authorized. For contract workers, this occurs when time cards and expenses are approved. For project services, the remaining budget should be indicated when approving time-and-materials expenses, or authorizing milestone payments based on acceptance tests. In addition, for each expenditure notifications are sent to the approval chain indicating percentage of usage.. The VMS can establish look back periods in which adjustments can be made. As importantly, it can prohibit approval of expenses to closed charge numbers or accounts with insufficient balances to support the expense.
Compliance All the Way: The VMS can also be customized to incorporate the requirements under the various non-financial rules and regulations governing the use of contingent workers, and the documentation requirements. The necessary checks and balances mandated by regulations such as the Sarbanes-Oxley Act, the ACA or FMLA can also be incorporated into the VMS.. The VMS will track every transaction, providing full auditing capabilities.
We encourage you to eliminate the unnecessary redundancy and administrative burden that comes with using a purchase order in concert with your VMS system. Instead, verify that your VMS is robust enough to provide all of the financial and operational controls needed to effectively drive your business.
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