Key differences between vendors and suppliers

Vendors and suppliers are two important players in any business ecosystem. While the two terms are often used interchangeably, they refer to different entities in the supply chain with distinct roles and relationships. Distinguishing between them can help you optimize your supply chain for improved business outcomes.

In this vendor vs. supplier comparison, we’ll explore the key differences between the two players, including their roles and the kinds of scenarios in which businesses employ their services. 

Let’s dive in.

Understanding vendors and suppliers

Definition of a vendor

A vendor is an entity that sells finished goods that are ready for immediate use or resale by a business or consumer. These could be goods that the vendor has produced or manufactured themselves, or that they have bought from a manufacturer or a distributor (usually on a wholesale basis). 

Vendors operate on both a business-to-business (B2B) and a business-to-consumer (B2C) basis—that is, their customers can be other businesses or individual consumers. They typically offer their products through physical stores, online stores, or a combination of both.  

Definition of a supplier

Suppliers are business entities that sell raw materials, or the component parts of a product to another company.

Unlike vendors, who, as we saw, can operate on both a B2B and B2C basis, suppliers operate exclusively on a B2B basis; that is, they primarily sell to other businesses rather than individual consumers. 

Example: The Gourmet Bistro

Imagine The Gourmet Bistro, a restaurant that prides itself on using the finest ingredients and offering a diverse menu.

Vendors:

• Artisan Beverage Co. supplies the Bistro with bottled artisanal sodas and specialty waters. These are ready-to-serve items that the restaurant sells directly to customers without any alteration. Similarly, Luxury Desserts Ltd. provides the Bistro with pre-packaged gourmet desserts like macarons and cheesecakes, which are also sold as they are.

Suppliers:

• On the other hand, Farm Fresh Produce delivers raw ingredients such as organic vegetables and herbs, and Prime Cuts Butchers supplies the restaurant with premium meats like aged beef and free-range chicken. These ingredients are essential for the Bistro’s chefs to create their signature dishes, such as their famous herb-crusted lamb or garden-fresh salads.

However, the distinction can sometimes blur. For instance, GrainWorks, a company that provides flour to The Gourmet Bistro for making their in-house bread, acts as a supplier. But if GrainWorks also sells pre-packaged flour to a local grocery store, where it’s sold directly to consumers, GrainWorks takes on the role of a vendor in that context.

In summary, whether an entity is categorized as a vendor or supplier depends on the product’s use in the supply chain—whether it’s a raw component for further production or a finished good ready for sale. This example highlights how a business like The Gourmet Bistro can interact with both vendors and suppliers, depending on their needs and the nature of the products.

To illustrate the difference between vendors and suppliers, let’s use the example of a restaurant business. 

Here, vendors would be the entities that supply you with products that you directly sell to your customers without altering them in any way. Examples are bottled soft drinks or water. 

On the other hand, suppliers are the companies that supply the raw ingredients—like flour, vegetables, and meat—that you use to prepare meals for customers.

That said, the lines can sometimes blur. Depending on the context, a company or business can be both a supplier (providing components or raw materials) and a vendor (selling finished products).

In the above example, the entity that supplies you with the flour you use to prepare meals is a supplier. But if the same entity was to supply flour packets to a grocery store owner who then sells it directly to consumers, that entity would be a vendor. That’s because, in this case, the entity supplies a product that is sold as is without being used to develop another product for sale. 

In a nutshell, the categorization of an entity as a vendor or supplier in the supply chain depends on whether the product it supplies is used as a component for further production or manufacturing, or is used or sold as a finished good. 

Vendor vs supplier: Key differences

Now that we’ve defined vendors and supplies in general, let’s delve deeper into their key differences. We’ll focus on three elements specifically: the role and position of each party in the supply chain, the type of relationships they have with businesses, and the type of products each deals with.

Role in the supply chain

A supply chain is the network of activities involved in transforming raw materials into finished products and delivering them to the end consumer. It encompasses activities like sourcing materials, manufacturing, warehousing, transportation, inventory management, order fulfillment, and more.

A typical supply chain follows this flow:

• Supplier -> Manufacturer -> Distributor (optional) -> Vendor -> Customer (end-user)

Suppliers are the first link in this chain, providing the essential ingredients or components manufacturers need to create the final product. They don’t interact directly with end users.

Vendors, on the other hand, are the second-to-last link in the supply chain, coming in just before the end users, who, as we saw earlier, can be an individual consumer or another business.

Nature of Relationships

The relationships between businesses and their suppliers and vendors differ significantly in focus and dynamics.

Vendor Relationships

Vendor relationships are generally transactional, emphasizing the immediate purchase and sale of goods. These relationships tend to be more flexible, allowing businesses to switch vendors based on factors such as price, availability, and convenience. The primary concerns in these relationships are product quality, availability, competitive pricing, and the terms of sale, such as delivery times and payment conditions. This flexibility is crucial for businesses to respond quickly to market changes and consumer demand, ensuring they can maintain a competitive edge.

Supplier Relationships

In contrast, relationships with suppliers are typically more strategic and long-term. This is because suppliers provide the essential raw materials or components necessary for uninterrupted production processes and high-quality outputs. The focus in supplier relationships is on the quality of supplied materials, reliability, and consistency of supply. For example, a manufacturer may work closely with its steel supplier to ensure the steel meets specific quality standards, thus avoiding production issues and ensuring high product quality.

These strategic relationships often involve integrating suppliers into a company’s production planning processes, including participation in product development and continuous improvement initiatives. This collaboration not only helps in maintaining a steady supply of high-quality materials but also in innovating and improving the overall production process. Over time, these business-supplier relationships foster mutual benefits, providing stability and reliability that come with a long-term commitment.

Types of goods

Another marked difference between suppliers and vendors is the type of goods. Here’s a quick rundown of the differences:

• Finished goods vs. raw materials: Vendors deal in finished goods that are ready for immediate use or resale.  In contrast, suppliers provide raw materials or components that require further processing to become a finished product.
• Consumer focus vs. production focus: Vendors are primarily concerned with meeting the needs of the end consumer, whether directly or indirectly through other businesses. Suppliers, on the other hand, focus on providing the essential materials needed for production processes.
• Value addition: Vendors typically sell products with added value that require no further work from the buyer, whether it’s a business or the end consumer customer. Their products are ready-made solutions. Conversely, suppliers offer the basic building blocks that businesses use to create their own value-added products.
• Complexity and integration: The goods provided by suppliers often require more complex integration into production processes. Vendor goods are usually simpler in terms of integration since they are ready for immediate use.

Why distinguishing between vendors and suppliers matters

Understanding the distinct roles of vendors and suppliers goes beyond mere terminology. It empowers you to optimize your operations and gain a competitive edge in several ways:

Improved procurement strategies

• Targeted sourcing: Knowing if you need a finished good (vendor) or raw materials (supplier) allows you to focus your search efforts more effectively.
• Stronger negotiation: A clear understanding of vendor and supplier roles empowers you to negotiate more favorable terms. For instance, bulk discounts might be more relevant with suppliers, while for vendors, you might focus on after-sales services.
• Reduced risk: By differentiating between vendors and suppliers, you can assess risks associated with each relationship differently. For example, if you run a manufacturing company, delays from a supplier of crucial components could have a greater impact on production than, say, a delay from a vendor for office supplies for your staff.

Enhanced supply chain efficiency

• Streamlined operations: Knowing where each component comes from allows for smoother coordination within your supply chain. You can optimize communication and delivery schedules to minimize bottlenecks.
• Effective inventory management: For finished goods from vendors, you might need to forecast consumer demand. although it’s still ideal to forecast demand for the finished product to inform your production schedule. On the other hand, raw materials from suppliers can be ordered based on production schedules. For more insights on optimizing inventory management, check out how AI can help address inventory inefficiencies.

Stronger business relationships

• Clear communication: Understanding the differences between the two parties helps you determine how to communicate with each more effectively. Good communication with both vendors and suppliers fosters better relationships.
• Improved trust and reliability: When businesses understand the specific roles of their vendors and suppliers, they can set clearer expectations and performance standards. This leads to a more reliable supply chain and ensures that both vendors and suppliers are more likely to meet their commitments. Consistently meeting expectations builds trust over time, which is essential for maintaining strong, long-term business relationships. It’s also important to be mindful of cultural differences, as these can influence communication styles and business practices. It’s helpful to engage in cultural training, encourage open communication, and show respect for different business customs and practices.
• Enhanced collaboration opportunities: Understanding the unique roles and capabilities of vendors and suppliers opens the door for more meaningful collaboration. These collaborative efforts not only lead to better products and services but also strengthen the bonds between businesses and their partners, fostering a spirit of teamwork and mutual success.

Overall, understanding the differences between vendors and suppliers allows you to make informed decisions and can lead to greater efficiency and stronger business relationships.

When do businesses use vendors vs. suppliers?

Below is a look at specific scenarios when businesses might leverage the services of vendors and suppliers.

Vendors

• Acquiring finished goods: When you need ready-to-use or resale products, vendors become the ideal source. For example, if you run a retail store, you can rely on vendors to supply a diverse range of consumer goods, from clothing to electronics.
• Direct consumer sales: If your business sells directly to consumers, like online retailers or brick-and-mortar stores, you can use vendors to provide a variety of products that can be sold without further manufacturing. 
• Brand recognition and image: Some vendors offer well-established brands that resonate with your target audience. Their established marketing strategies and brand image can enhance your product offerings and attract customers.
• Direct customer support: Certain vendors provide customer service and support for the products they sell. This can be especially valuable if you lack expertise in after-sales service for specific products.
• Flexibility and variety: Vendors typically offer a wider range of brands, styles, and price points, allowing you to cater to different customer segments within your target market.
• Responding quickly to the market: When you need to adapt swiftly to market trends and consumer demands, vendors are essential. They can provide seasonal or trendy items, enabling you to stay competitive. For instance, if you own a fashion retail store, you can quickly stock up on the latest trends by purchasing from vendors.
• Flexible inventory management: Vendors are suitable for businesses like yours that need flexibility in ordering quantities. If you are a small business or startup, you might not have the capacity to purchase in bulk. You can benefit from vendors who provide smaller, manageable quantities of finished goods. 
• Rapid expansion: When you aim to expand your product range quickly without developing new products, vendors are the solution. For example, if you own a home goods store, you can diversify your offerings by sourcing different products from various vendors, enhancing your appeal to customers.

Suppliers

• Acquiring materials or components in bulk: Suppliers excel at providing large quantities of the essential building blocks for products. This applies to a wide range of businesses, including those in manufacturing, food service, construction, and many more.
• Ensuring consistent quality control: Consistent quality is essential whether you’re crafting furniture, brewing beer, or producing pharmaceuticals. Suppliers often specialize in specific materials and implement rigorous quality control measures, ensuring your finished product meets the required standards.
• Meeting long-term and ongoing production needs: For businesses requiring a steady, long-term supply of raw materials or components for ongoing production, suppliers are ideal partners. An automobile manufacturer, will engage with suppliers for a continuous supply of parts like engines, tires, and electronics over several years.
• Achieving cost efficiency and stability: Suppliers often offer cost benefits through long-term contracts and stable pricing. This is advantageous for businesses looking to manage budgets effectively.

How Cin7 Enhances Supplier and Vendor Management

While both suppliers and vendors are involved in providing goods to a business, there are several differences between them, as we’ve seen.

Suppliers provide the raw materials or component parts necessary for the production or manufacture of final goods. On the other hand, vendors provide finished goods that are ready for direct use or resale. In a typical supply chain, suppliers are the initial links, while vendors are the second-to-last link. Last but not least, supplier relationships are long-term and more strategic in nature, while those with vendors are usually more transactional. 

Cin7 provides connected inventory performance with industry leading inventory management software that offers comprehensive solutions for more efficiently managing purchasing from vendors and suppliers as well as managing and integrating with many other players in the supply chain for an efficient operation. 

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