Blog

Learn what a vendor is and explore the various types of vendors. Get insights and practical advice to collaborate effectively for mutual success.

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.

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:

1. 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.

2. 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.

3. 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

There’s a lot that goes into warehouse shipping—most of it happens before your parcels leave the facility. Here’s how the entire process typically works from end to end:

• * 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.

• * 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.

• 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.