What Is a Vendor?
A vendor is a person or a business that provides products or services. Their customers might be other businesses, or they might sell directly to consumers.
We’ll discuss what a vendor is and how it works, provide examples, and cover the different types of vendors.
Definition and Example of a Vendor
Vendors are an important part of the supply chain. A company or an individual who sells a good or a service is a vendor. Vendors may sell to other businesses, or they may be retailers who sell straight to consumers.
An example of a vendor is a company that provides inventory for boutique clothing stores. A store places an order with the company, detailing what products it wants as well as how many of each product. The company then sources the requested items from the manufacturer and delivers them to the store.
How a Vendor Works
The process of how a vendor operates is unique to each vendor situation. Within the various types, vendors can transact with different kinds of customers.
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A vendor that sells business-to-consumer (B2C) sells goods or services straight to the consumer, who is the end-user.
A business-to-government (B2G) vendor provides products or services to the government, whereas a business-to-business (B2B) vendor interacts with other businesses.
For example, a B2B vendor that sells raw materials might sell materials to a manufacturer that uses those materials to create a finished product that it then sells. In this scenario, the business that is buying the materials places a purchase order with the vendor, including information about which materials they want, quantity, and price, among other details.
The vendor delivers the raw materials to the business in the agreed-on time frame, and presents an invoice to the company upon delivery of the ordered items. The business compares the purchase order with the invoice and the receiving report to make sure that all documents match up, and that it has been invoiced for and sent the correct order.
The business then uses the raw materials in its manufacturing, and becomes a vendor of that product when it sells it to retail businesses in a B2B transaction. The retail businesses, operate which B2C, then sell the end product directly to the public.
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Having good relationships with your vendors can be beneficial for your business, and can help increase the efficiency of your supply chain.
Types of Vendors
“Vendor” is a term that can be applied to sellers in a variety of contexts.
Manufacturer
Vendors that are manufacturers will construct products using raw materials. When they sell the products they created, they are acting as vendors. Manufacturers will often sell goods to wholesalers or retailers.
Wholesaler
Wholesale vendors source items and purchase large quantities of products in bulk straight from the manufacturer. A wholesaler stores the products and marks up the price of the items to resell them to retailers.
Retailer
A retailer often buys its products from a wholesale vendor, then marks up the product to sell it to its customer base. Examples of retail vendors include an online shop that sells specialty wares directly to consumers, or a food truck that sells its goods to the general public.
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Big retailers often source products from multiple different vendors. A large retailer such as Target, for example, carries vast amounts of products sourced from retailers all around the world, and implements an application process and strict set of standards to keep their suppliers aligned with the company’s values.
Service or Maintenance
Vendors that provide services or maintenance offer their skills as a commodity. They may provide their services or maintenance to other businesses or directly to the public. Examples of service providers include gardeners, cleaners, consultants, electricians, and plumbers.
Key Takeaways
- A vendor is an individual or business that provides a good or service. It is a crucial part of the supply chain.
- Vendors may sell directly to consumers in business-to-consumer (B2C) transactions; they may sell to the government if they are a business-to-government (B2G) vendor; or they may sell to other companies in business-to-business (B2B) sales.
- There are many different types of vendors; Some of the major types include manufacturers, wholesalers, retailers, and vendors that provide services or maintenance.