Vendor vs Supplier: Key Differences Between Vendor and Supplier

A supply chain includes several components, each playing a node in the overall flow from raw materials to finished goods or services or both in the hands of end consumers. Suppliers and vendors are crucial parts of the supply chain with distinct characteristics and roles. For a startup owner, it is important to understand these distinct differences to build a seamless supply chain flow. 

This article discusses everything an entrepreneur or business owner must know to recognise the key differences between vendors and suppliers.   

Who is a Vendor? 

A vendor is a person or a business entity that sells finished or semi-finished products to other businesses or individual consumers. The ‘selling’ may involve the vendor manufacturing first and then selling the same, or it may simply be a re-selling of a product after sourcing/buying it from manufacturers. Re-selling may also include re-packaging and labelling with vendor-specific branding elements. 

Key Responsibilities of a Vendor

The responsibilities of a vendor may vary with industries, size of operations and business agreement between the buyer’s company and its vendor. However, in a broader sense, the duties and responsibilities of a vendor include:

• Maintaining product and service quality 
• Delivering within the timeline 
• Inventory management 
• Sharing information with customers 
• Post-sales services 
• Documentation 

Maintaining product and service quality - Vendors maintain inventories and sell finished, semi-finished and packaged goods. So, maintaining the quality of their products is also the responsibility of the vendors.  

Delivering within the timeline - Being a crucial part of a B2B supply chain, the delivery timeline of a vendor significantly influences the supply flow of any company. For B2C sales, the delivery timeline of a vendor directly influences customer experience. So, it is the responsibility of vendors to adhere to the pre-specified timeline and improve delivery efficiency. 

Inventory management - As vendors handle timely delivery, they need to maintain, monitor and manage their inventory to avoid stock-outs, delivery disruptions and commitment failure. 

Sharing information with customers - Communication with customers about order processing, logistics updates and other relevant information related to product delivery is the duty of every vendor. This improves customer experience and helps customers, especially in B2B sales, to mitigate risks.   

Post-sales services - Sometimes, vendors need to process product returns and refunds, handle queries, and respond to and resolve complaints. A vendor might offer post-sales services on behalf of the manufacturer or as part of the vendor’s value-added services as part of the sales. 

Documentation - Finally, vendors need to maintain documentary evidence or records of the transactions and contractual commitments. This helps vendors to comply with their contractual and regulatory obligations and to avoid legal complications.  

Types of Vendors

Based on their business models, what they sell and the scale of their operations, vendors can be categorised into: 

• Manufacturer - They operate manufacturing units of products they sell. Manufacturing may involve transforming raw materials to finished products, or simple repackaging and labelling of products sourced in bulk from actual manufacturers. 
• Service providers - Such vendors are in the business of providing business services, like accounting, marketing consultation, logistics, IT system management, etc.   
• Wholesaler - These types of vendors are mostly resellers sourcing products from the manufacturers and supplying in bulk to other businesses and retailers. 
• Retailers - They sell products to end consumers. 
• Drop-shippers - This type of vendor maintains inventory, fulfils orders, and manages delivery logistics for drop-shippers on behalf of the product manufacturing companies. Such vendors also cater mostly to B2C customers. 

Examples of Vendors

Some of the common examples of product-based vendor businesses are: 

• Computer hardware wholesalers and retailer 
• Consumer durables resellers
• Office stationery sellers 
• Automobile parts manufacturers and resellers 
• Industrial spare parts manufacturers 

Some of the common examples of service-oriented vendor businesses are: 

• Software developers 
• Software resellers 
• IT hardware maintenance 
• Logistics 
• Transportation 

Who is a Supplier?

Suppliers are the individual or business entities sourcing raw materials, semi-processed raw materials or machine components as inputs of final production to manufacturers. Compared to vendors, suppliers mostly operate in a B2B environment as supplies happen in bulk qualities. 

In many situations, a person or business entity may act as both vendor and supplier. For example, a company selling flour in bulk to confectionaries acts as a supplier. The same company may sell flour in labelled packages in departmental stores and online shops as vendors. 

Key Responsibilities of a Supplier

Responsibilities of suppliers slightly differ from vendors’, as suppliers work solely with B2B customers. 

Some of the common suppliers’ responsibilities are: 

• Quality assurance 
• On-time delivery 
• Flawless communication 
• Competitive pricing 
• Inventory management 

Quality assurance - Similar to vendors, suppliers also need to take responsibility for the quality of materials they supply. Large B2B customers maintain stringent quality control as failure to comply with pre-specified standards may cause cancellation of sourcing contracts. 

On-time delivery - Suppliers are critical parts for ensuring an efficient supply chain flow. So, the importance of timely delivery is paramount for suppliers and, is often a non-negotiable part of contractual obligation. 

Flawless communication - For effective supply chain management, a company requires a constant (in real time) flow of information from its supplier regarding despatch, transportation and other aspects of delivery. So suppliers must ensure flawless communication with their customers. 

Competitive pricing - Being in the B2B business, price competitiveness is the key to success in suppliers’ business. Competitive pricing also considers related factors like quantity, delivery timeline and duration of the contract. 

Inventory management - Transportation problems and supply disruptions can be unavoidable sometimes. So, to ensure timely delivery to B2B customers, suppliers are also responsible for maintaining their inventory and keeping track of material stock with their B2B customers. 

Types of Supplier

Types of suppliers vary with the mode of their operations, location of operation and type of materials they supply. 

• Raw material suppliers - Manufacturers source unprocessed and semi-processed inputs of production from raw materials suppliers. Examples of raw materials can be metal ore, metal bars, fabric, chemicals, vegetables, flours and many more.     
• Component suppliers - These suppliers can be further categorised into suppliers of non-critical items, leverage items, bottleneck items, and strategic items. An example of a non-critical item is readily available material, while bottleneck items can be materials that are in short supply. For example, semiconductor chips were significant bottleneck items during the COVID pandemic. 
• Local suppliers - They are mostly based in and operate from the same city as their B2B customers. 
• National suppliers - They may source from or manufacture in one location but supply to multiple locations within a country. 
• International suppliers - These suppliers usually manufacture or source from a particular production hub but maintain the network and logistic capability to supply customers across different countries. 
• Remote suppliers - The key difference between remote and international suppliers is the physical presence in the customers’ location or country. Remote suppliers mostly operate through online stores and source their products like international suppliers. 
• Internal suppliers - Sometimes, large companies source materials from their sister and subsidiary companies. Such suppliers can be considered as internal suppliers. 

Examples of Suppliers

The common examples of suppliers are: 

• Wheat suppliers to bread makers 
• Suppliers of ethanol to petroleum refineries 
• Packaging materials suppliers to FMCG companies 
• Automobile component suppliers to carmakers 
• Steel roll suppliers to car makers 

Key Differences Between Vendor and Supplier

Similarities Between Vendors and Suppliers

People often confuse vendors with suppliers, and the reason is several similarities between them. 

• Both are external intermediaries in a supply chain with crucial contributions to the flow from raw materials to finished goods.  
• Vendors and suppliers both sell components and materials to businesses. 
• Both are contractually obligated to their customers for supply. 
• Responsibilities of quality assurance and timely delivery equally apply to vendors and suppliers. 
• Both of them have responsibilities of maintaining inventories and sharing delivery details with their customers.  

How do Businesses Choose Vendors vs Suppliers? 

While choosing vendors and suppliers, a business owner must follow a set of best practices to avoid future complications, like sourcing disruptions, frauds, malpractices, and compliance issues. 

1. Define requirements - This should include technical and non-technical specifications for materials, products or services that you want to sell. You should also have an estimation of the business volume you wish to achieve.  
2. Search markets - Conduct thorough research on existing vendors and suppliers in the market for items you require. You can restrict your search to your neighbourhood or at the national level. The number of potential vendors and suppliers increases as you widen your horizon. However, this may also increase transportation costs and other associated risks.  
3. Request information - Once you have prepared a list of suppliers and vendors, share your requirements and request information about their business interests, capabilities, and product samples. 
4. Verify potential candidates - You should have received EoI or Expression of Interest from possible candidates. It is time to verify and validate their reputations, experience, finance and other parameters. At the end of this stage, you will have a list of trustworthy vendors and suppliers.  
5. Request for Quotations - Ask the verified vendors and suppliers for final price quotations along with terms of delivery. 
6. Negotiate terms of engagement - Negotiation happens based on price, quality, delivery timeline and volume of business.   
7. Draw and finalise contract - This is the contract signing stage in which you formalise the terms of engagement with your vendors and suppliers, and induct them into your business system.