A vendor is any party that sells goods or services to another party. They are crucial players in the supply chain, bridging the gap between manufacturers and consumers.
From local farmers markets to global ecommerce giants like Amazon, vendors come in all shapes and sizes, each contributing uniquely to commerce.
Deloitte reports that 79% of companies view vendor management as crucial to their success. This highlights how deeply integrated vendors are in modern business strategies.
Ahead, learn what a vendor is and the different types of vendors. This will help you identify the best fit for your business, enabling you to thrive in today’s competitive market.
What is a vendor?
A vendor is an entity—either an individual or business—that sells goods or services to companies or consumers for profit. This term covers both manufacturers and suppliers or resellers of goods made by others.
Vendors span a wide range of industries and roles. For example, a local artisan selling handmade crafts on Shopify is a vendor, as is a multinational corporation like Foxconn, the main assembler of Apple products.
How vendors work
The role of a vendor extends far beyond simply supplying products. Vendors can be manufacturers, wholesalers, or service providers, each with different approaches based on their role.
Here’s a quick breakdown of how vendors function:
- Business-to-consumer transactions: Vendors source goods to meet their B2C clients’ needs. For example, a vendor supplying retail chains like Target buys goods at wholesale prices and sells them to these stores. These vendors typically have robust operations to plan, acquire, and deliver the contracted goods and services.
- Business-to-business transactions: Many vendors operate in the B2B space, supplying parts or components needed by other businesses to make the final product work. For instance, a tech company making smartphones needs specific microchips from various vendors.
- Provision of services: Vendors can also provide services. Suppose a marketing agency wants to create a website for a client. It might hire vendors specializing in web design, content creation, and graphics. Each vendor brings their expertise, helping the agency deliver a successful and functional website. (More on this below.)
The vendor supply process
Vendor selection
First, identify your business needs, whether it’s raw materials, IT support, or event planning.
Conduct market research for effective vendor sourcing—understand their capabilities, reputations, pricing, and reliability. Sending out requests for proposals (RFPs) or requests for quotes (RFQs) can also help you get detailed bids from potential vendors.
Evaluate and shortlist proposals based on cost, quality, delivery time, and reputation. For crucial or long-term partnerships, consider conducting audits or site visits to ensure vendors meet all necessary standards.
💡Note: Vendors must comply with various legal and regulatory requirements. This includes obtaining the necessary licenses to operate, especially in regulated industries. Make sure your shortlisted vendors meet these standards to avoid legal and operational risks.
Contract negotiation and onboarding
Once you’ve chosen a vendor, negotiate contract terms. This includes setting prices, payment terms, delivery schedules, quality standards, and penalties for non-compliance. Have your legal and compliance teams review contracts to ensure everything is clear and fair.
Next comes onboarding, where you integrate the vendor into your company’s systems, setting up accounts, and providing necessary training. This step is crucial for both product and service vendors.
Order placement and fulfillment
Submit a purchase order (PO) to the vendor, outlining the goods or services needed, quantities, prices, and delivery dates. Vendors acknowledge these POs to confirm details, then prepare or produce the goods or services as specified and submit an invoice.
For example, if you’re a Shopify merchant selling custom t-shirts, your vendor ensures they have enough blank tees and printing supplies to meet your order.
Next, you’ll do quality checks to ensure the goods meet the agreed standards.
💡Top Tip: Create detailed vendor profiles on Stocky. You can issue POs directly within the platform, simplifying inventory management. Learn more about Stocky
Payment and reconciliation
Once you receive the goods or services and the invoice, verify the invoice against the PO and delivery records to confirm accuracy. Process payments according to agreed terms—upfront, in installments, or upon delivery.
Reconciliation follows next, where you and the vendor ensure all transactions are correctly documented.
This step maintains financial integrity and transparency, whether dealing with small vendors or large-scale suppliers.
Sale or usage of goods or services
You can either use the goods or services ordered from the vendor for your own business or sell them to individual consumers. If you choose to sell these goods or services to another individual or company, you effectively become a vendor yourself.
Supplier vs. vendor
While vendor and supplier often are used interchangeably, they mean different things.
- Suppliers provide raw materials, components, or products—typically in bulk quantities—to businesses that turn them into finished goods. They are key players at the start of the supply chain. For example, a steel manufacturer providing raw steel to an automotive company is a supplier.
- Vendors sell finished products or services directly to consumers or businesses that then sell to consumers. For example, companies that buy finished steel and sell it to consumers or use it to make other goods (e.g., automotive companies, construction firms) are vendors.
The main differences are:
- Supply chain position: Suppliers are at the beginning, providing necessary raw materials. Vendors come later, selling the end products.
- Type of goods: Suppliers offer raw materials or components. Vendors provide finished goods or services ready for use.
- Customer base: Suppliers cater to manufacturers or businesses needing raw materials. Vendors serve end-users, whether individual consumers or businesses.
- Volume and frequency: Suppliers handle large, recurring orders. Vendors deal with smaller quantities but more frequent sales based on consumer demand.
Understanding these differences helps you manage your supply chain better. Build collaborative relationships with suppliers to ensure quality and steady supply. With vendors, focus on efficient delivery and top-notch customer service.
Types of vendors
- Manufacturers
- Wholesalers or distributors
- Independent craftspeople
- Importers
- Dropshippers
- Retailers
- Service providers
Manufacturers
Manufacturers create products from raw materials. Sourcing from them often means lower prices, as there are no middlemen. This direct relationship allows for customization and better quality control. Manufacturers are ideal if you want to establish a remarkable product line with specific requirements.
Wholesalers or distributors
Wholesalers or distributors buy goods in bulk from manufacturers and resell them to retailers or other businesses. They offer a wide range of products, often at discounted prices due to bulk purchasing.
Wholesaler suppliers simplify procurement and reduce costs by being a one-stop shop for various products. You can partner with them if you need diverse inventory without dealing with multiple vendors.
📚Read: 16 Best Small Business Wholesale Suppliers (2024)
Independent craftspeople
Independent craftspeople are artisans who create handmade or singular products. They generally produce goods in smaller quantities, focusing on quality and craftsmanship. Buying from them adds a unique touch to your inventory, appealing to customers wanting one-of-a-kind items. This vendor type is ideal if you value artisanal quality and want to offer exclusive products.
Importers
Importers bring products from international markets into your local market, handling the complexities of international shipping, customs, and regulations. They provide access to diverse products that might not be available locally, often at competitive prices. If you want to offer global products or capitalize on international trends, importers are your best bet.
Dropshippers
Dropshippers handle inventory and shipping directly to customers on your behalf. With dropshipping, you don’t need to maintain stock, reducing overhead costs and storage needs. This model allows you to offer a wide range of products without the risk of unsold inventory. Dropshipping is ideal for ecommerce businesses looking to expand product offerings with minimal investment.
Retailers
Retailers sell products directly to the end consumer and provide ready-to-sell goods in smaller quantities. They offer convenience and quick turnaround times, making them a viable option if you need to replenish stock quickly.
Service providers
Service providers offer non-tangible products like IT support, marketing services, or event planning. They are useful for outsourcing tasks or gaining specialized expertise. You can collaborate with them to enhance operations, improve efficiency, and access solutions not feasible to develop in-house.
Examples of vendors
Pela
Pela offers eco-friendly products like compostable phones and AirPod cases. It uses sustainable production methods that cut carbon emissions by 30% and use 34% less water than traditional methods.
Pela supplies these green products to retailers, who sell them to environmentally conscious customers. This commitment to sustainability gives Pela dual benefits: it reduces environmental impact, and it attracts a loyal customer base.
Faire
Faire is a wholesaler and distributor that connects independent brands with small retailers through its integrated marketplace.
The platform sources products from various manufacturers and offers them to more than 150,000 retailers worldwide, mostly in Europe. Faire provides perks like discounted shipping, dropshipping, and smart-matching technology to help retailers find the best suppliers. This makes inventory management easier and ensures small businesses have access to high-quality products.
Manitobah Mukluks
Manitobah Mukluks creates handmade footwear and accessories that honor Indigenous traditions. The brand combines traditional techniques with modern materials to produce unique, high-quality items. These products are then sold to retailers and directly to customers who appreciate cultural heritage and fine craftsmanship.
Spocket
Spocket is a leading dropshipping vendor, sourcing products from suppliers in the US and Europe. The platform allows merchants to sell a variety of items, from clothing to tech accessories, without holding inventory. Additionally, it automates inventory management and order processing, saving merchants time and effort.
With a focus on high-quality products and faster shipping times, Spocket boosts customer satisfaction and is a favorite among Shopify merchants.
Cowboy
Cowboy is a modern retailer selling smart e-bikes. It purchases top-notch e-bikes and accessories from manufacturers and enhances the online shopping experience with detailed product descriptions and high-quality visuals. Cowboy customers, who typically are tech-savvy and environmentally conscious consumers, can also do test rides, building their trust in the brand.
Tips for working with vendors
- Establish vendor criteria
- Create a mutually beneficial contract
- Establish shared goals and aligned KPIs
- Communicate promptly and clearly
- Leverage technology where possible
- Prioritize building stronger vendor partnerships
1. Establish vendor criteria
Working with quality vendors helps you nail the trifecta: excellent products, top-notch service, and competitive pricing. Setting clear criteria is how you can identify such vendors.
Key considerations for vendor criteria:
- Experience: Choose vendors with a proven track record and established standards. Experienced vendors understand your needs and can handle business complexities, making them ideal partners.
- Financial health and reputation: Opt for vendors with a stable business model, low turnover rates, and positive reviews. Check their references to ensure they have a solid reputation and healthy client relationships.
- Product quality and fair pricing: Be cautious of vendors with suspiciously low prices—it’s likely an indicator of poor quality. Conduct thorough market research to get good value without compromising quality.
From a business perspective, you want long-term partnerships that provide mutual benefits. From a human perspective, reliable vendors who are pleasant to work with are crucial.
💡Top Tip: If your company is large enough, think about dedicating a full-time role to vendor procurement. This can simplify the process and ensure you’re working with the best partners.
2. Create a mutually beneficial contract
Start by learning about your vendor’s business and what they need to thrive. This could mean offering flexible payment terms, marketing support, or help with logistics. Then, agree to policies that reduce your vendor’s risks, such as providing reasonable lead times for orders or guaranteeing minimum order quantities.
Including advice and regular strategy meetings in the contract agreement can also strengthen your relationship. For instance, you can add clauses for feedback sessions to ensure ongoing communication and mutual growth.
This collaborative approach adds value to vendor operations and shows you’re committed to a fair partnership where everyone thrives, not just you.
3. Establish shared goals and aligned KPIs
Setting shared goals and KPIs with your vendors ensures smooth supply chain management and creates a unified vision for success. This approach aligns your objectives with theirs, building a partnership where the vendor feels invested in your success, thereby reducing the risk of vendor fraud.
Here are some tips for aligning your goals and KPIs:
- Organize joint planning sessions: Hold regular strategic planning sessions with your vendors to discuss long-term objectives and how they align with each other’s business goals.
- Develop customized KPIs: Set KPIs that are specific to your business needs and the vendor’s operational strengths. For example, if your goal is to enhance product innovation, include KPIs related to the number of new product ideas proposed by the vendor or the time taken to bring these ideas to market.
- Ensure mutual accountability: Hold both parties accountable for meeting the agreed-upon goals and KPIs. This reinforces the partnership and motivates both sides to stay committed to achieving the desired outcomes.
- Establish feedback loops: Create mechanisms for continuous feedback and improvement. This can include regular performance reviews and joint problem-solving sessions to quickly address any issues that arise.
4. Communicate promptly and clearly
Right away, let your vendors know what you want and expect from them. This will prevent misunderstandings and help build a strong, cooperative relationship.
Clearly outline expectations in your vendor contracts and POs so that both parties understand their responsibilities.
For vendors, this includes payment terms, performance metrics like software uptime and support response times, delivery schedules, and product specs. For you, this means making timely payments, providing clear and accurate order details, and promptly communicating any changes or issues.
Additionally, schedule regular meetings, whether in person or online, to review progress, address issues, and discuss future plans. If things go wrong, be sure to take responsibility for any issues on your end. Whether it’s a delayed payment, a typo in an invoice, or a lost email, acknowledging your mistakes builds trust in the partnership.
5. Leverage technology where possible
Using technology to streamline real-time collaboration and transparency can greatly improve your vendor relationships.
How? When you leverage modern tools, you gain real-time visibility into your supply chain. Consequently, you can identify and address issues promptly, plus foster a collaborative partnership.
Consider using the following to your advantage:
- Vendor management systems (VMS): Implement a VMS to centralize all vendor-related information and processes and keep everyone on the same page. You can use it to track performance metrics, manage contracts, and facilitate communication.
- Collaborative platforms: Leverage platforms like Slack or Microsoft Teams to create dedicated channels for vendor communication. These platforms keep stakeholders aligned and enable quick resolution of concerns.
- Data sharing and analytics solutions: These are handy for sharing relevant data and analytics with your vendors. For instance, providing sales forecasts helps vendors plan their production schedules better, reducing lead times and preventing stockouts.
6. Prioritize building stronger vendor partnerships
Here’s the thing: To truly benefit from your vendor relationships, you need to go beyond mere transactions.
Aim to understand your vendor’s business operations, challenges, and strengths. This deep connection enhances problem-solving and creates a responsive supply chain, ultimately fueling your business’s growth.
You can take the following steps to strengthen vendor partnerships:
- Keep communication open: Maintain clear and transparent communication channels with your vendors to discuss performance and address issues. Schedule regular check-ins—monthly or quarterly—via email, phone calls, instant messaging platforms, or in-person meetings.
- Visit their sites: Periodic visits to your vendors’ facilities can give you insights into their operations. This hands-on approach will help you identify potential areas for collaboration or improvement.
- Offer training and support: Provide training and support to your vendors, such as sharing best practices, introducing new technologies, or offering guidance on industry standards.
- Recognize and reward: Don’t forget to acknowledge your top-performing vendors. Positive reinforcement like formal awards, public recognition, or additional business opportunities can motivate them to perform better.
Start building relationships with vendors
Working with vendors can bring numerous benefits to your business—if done right.
First, evaluate vendors based on reliability, product quality, and flexibility. Communicate clearly and consistently about your requirements, and seek their input. You must also adopt a collaborative approach that involves vendors in your planning and forecasting processes. Finally, honor your agreements and reward good performance, thereby laying the foundation for long-term partnerships.
Vendor FAQ
What does a vendor mean in business?
In business, a vendor is an individual or brand that sells goods or services to another business entity. They are essential for supplying the products needed for businesses to operate and serve their customers.
Is a vendor a buyer or seller?
A vendor is a seller. They supply goods or services to buyers, who are typically other businesses or consumers.
What is vendor vs. a supplier vs. a seller?
- A vendor sells goods or services to others. They can be small or large businesses that sell directly to consumers or other companies.
- A supplier provides raw materials or components to organizations. They are important early in the supply chain, providing the necessary parts that businesses need to produce their final products.
- A seller is anyone who offers goods or services for sale. While similar to a vendor, “seller” usually refers to the end party in a transaction, especially with consumers.
