Firms Re-Evaluate Reliability of Vendor Management System Suppliers

By Irwin Speizer

Apr. 8, 2008

The bankruptcy of the largest provider of contingent staffing vendor management systems is prompting a broad reassessment of the field by large corporations using the software and by staffing companies that sometimes operate their own systems.

    The increased focus on the financial stability of companies supplying vendor management systems, or a VMS, may work against smaller, independent software enterprises in favor of larger, better capitalized companies—particularly large staffing companies that offer their own VMS products. The shift could tilt power back to staffing companies, which have complained about the increasing leverage of independent VMS firms that manage the assortment of contingent staffing services used by large employers to manage temporary and contract labor.

    “We know there are a lot of companies that are evaluating their VMS providers,” said Steve Whitehead, managing director of strategic accounts for staffing company Randstad North America in Atlanta. “Companies are second-guessing decisions, holding up broader implementation of some tools. There is a bit of a pause in the market.”

    Randstad, an international staffing company based in the Netherlands, offers its own VMS to customers.

    The catalyst for the new review of VMS providers is the recent collapse of Ensemble Chimes Global, the largest player in the VMS space. Ensemble Chimes was part of Axium International of Los Angeles, a company best known for providing payroll services to the movie industry.

    When Axium abruptly filed for bankruptcy and shut down in January amidst allegations of financial mismanagement, subsidiary Ensemble Chimes folded as well, leaving corporations and staffing companies around the country and the globe scrambling to deal with pending contracts and hundreds of millions in bills. Ensemble was sold out of bankruptcy on January 23, followed by the rest of the Axium business on January 31.

    “When the No. 1 player goes belly up, that creates a crisis of confidence,” said Jim Lanzalotto, vice president of strategy & marketing at Yoh, a technology staffing company based in Philadelphia. “Some of biggest corporations are saying, ‘We don’t know if we can trust this anymore.’ “

    Yoh offers its own VMS, and Lanzalotto figures his firm should have an advantage going forward because it is a division of Day & Zimmerman, the Philadelphia-based multinational corporation whose operations include architectural and project management services.

    “The pure VMS guys, they have no assets,” Lanzalotto says. “They have software, but no capitalization. If something goes wrong, there is nothing to fall back on.”

    While VMS providers are now under greater scrutiny, the underlying technology shows little sign of losing popularity. The reason: VMS systems tend to perform as billed, helping large corporations gain control of what had been a decentralized and haphazard system of using temporary and contract labor.

    The VMS concept revolved around adapting the techniques of centralized billing, purchasing and managing of vendors for basic needs like office supplies to the contingent labor field, with a goal of improving efficiency and saving money.

    Independent VMS providers like Ensemble Chimes snatched a major share of the market by offering not only the technology to manage staffing contracts and vendors, but also some independence from the staffing companies that provide the labor. But the Ensemble Chimes collapse is prompting a new look by corporations into their use of third-party VMS companies. Some staffing companies are suggesting that third-party VMS companies aren’t worth the risk.

    “We have told some of our clients that we are just not interested in dealing with some of these independent-type players without some way of making sure we don’t get caught again,” said Roy Krause, CEO of Spherion, a large, diversified staffing and recruiting company based in Fort Lauderdale, Florida. Spherion also offers a VMS.

    While Ensemble Chimes no longer exists, its software and technical expertise are now part of Beeline Consulting, the company that bought Ensemble Chimes out of bankruptcy. Based in Jacksonville, Florida, Beeline offers a range of VMS and managed services products and is a division of the much larger staffing and recruiting company MPS Group. Beeline hired about 50 Ensemble Chimes employees, mostly technology workers.

    David Cooper, principal in Beeline Consulting, said a significant number of Ensemble Chimes customers moved to Beeline after the deal, partly because abruptly changing VMS vendors is difficult and partly because Beeline can point to its financial backing from MPS Group.

    “My personal opinion is that the only ones who will be left in this space will be the staffing company-based VMS providers,” Cooper said.

    Cooper joined about 30 other representatives of staffing companies and VMS providers at a Dallas summit in January sponsored by the American Staffing Association. As a leader in the company that emerged as the successor to Ensemble Chimes, Cooper found himself peppered with questions from staffing companies.

    Some staffing company executives used the opportunity to vent long-held resentments toward VMS providers, complaining about lack of access to corporate hiring managers, loss of contracts to other vendors, and the impersonal nature of working through a computer program.

    “One of the suppliers said that if it wasn’t for the VMS providers, they could still be getting job orders on napkins like they used to.” Cooper said.

    Cooper says there is no going back to those days. “The VMS industry is not dying, and we don’t need to freak out,” he said.

    Richard Wahlquist, president and CEO of the American Staffing Association, said the Ensemble Chimes collapse and the summit helped focus attention on VMS issues that have worried staffing companies for several years.

    “The largest single concern over the introduction of VMS arrangements and the increase in the use of VMS arrangements is putting an intermediary between a staffing company supplier and the end user,” Wahlquist said. “I think the Chimes episode provided an opportunity for ASA to try to mount an education campaign with America’s largest companies to suggest that there are some very important principles when deciding whether to enter into one of these arrangements.”

    In February, the ASA released a VMS best practices white paper offering tips on evaluating and using VMS services with an emphasis on detecting potential financial problems. Wahlquist also sent a letter about the ASA conclusions to CFOs of 2,000 large corporations.

    A number of staffing companies have reported receiving calls from their corporate clients after the letter went out asking questions about their VMS services. That’s exactly what Wahlquist was hoping to stimulate.

    “This whole process only works well when suppliers—staffing firms—have the opportunity to have dialogue with human resources departments and with other company supervisors,” Wahlquist said. “If the process gets reduced to a pure play of filling orders through a software arrangement, it doesn’t work as well.”

    Wahlquist figures the Ensemble Chimes collapse, while disruptive, may ultimately prove to be a blessing for staffing companies by bringing them closer to their clients. He acknowledged that there is no turning back from the use of VMS systems. While Wahlquist expects a continuing emphasis on vetting VMS providers for financial stability, he doesn’t foresee a future when the only ones offering the service will be staffing companies.

    “I know there are some folks in this space who would like to imagine that will be the future,” Wahlquist says. “I’m not certain that we won’t continue to see a number of different VMS flavors.”

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