What Is a Vendor?
A vendor is a party in the supply chain that makes goods and services available to companies or consumers. The term "vendor" is typically used to describe the entity that is paid for goods provided rather than the manufacturer of the goods itself. However, a vendor can operate as both a supplier (or seller) of goods and a manufacturer.
- A vendor is a general term for anyone who buys and sells goods or services.
- A vendor purchases products and services and then sells them to another company or individual.
- Large retailers, like Target, rely on many different vendors to supply products, which it buys at wholesale prices and sells at higher retail prices.
- A manufacturer that turns raw materials into finished goods is a vendor for retailers or wholesalers.
How Vendors Work
A vendor, also known as a supplier, is a person or a business entity that sells something. A vendor generally finds somewhere to purchase their goods and services. After acquiring the necessary items, the vendor markets and sells their wares through whichever method works best for them. For example, if it is a food truck, the vendor ensures there are enough supplies to make items on the menu and feed an expected number of customers, then drives to a target area and begins selling food.
Some large retail store chains, such as Target and Walmart, generally have a list of vendors from which they purchase goods at wholesale prices. In turn, they then sell the goods at retail prices to their customers. A vendor that supplies one of these large stores would need a much larger operation to plan for, acquire, and provide the goods and services they are contracted for.
Many vendors act as business-to-business (B2B) sales organizations that provide parts of a product to another business to make an end product. For example, if your small business made widgets out of gadgets, you'd need to find vendors with all the gadgets you need. You might find one vendor that has them all or would need to find multiple vendors to assemble your widgets.
In turn, you could sell your widgets on an online retailer platform, becoming a vendor yourself.
Some vendors provide services for entities of all sizes and levels. For example, a human resources department of a large company might plan a holiday party for its employees. Many hire outside vendors to supply goods and services for the event. Sometimes, the event is too large to be held in buildings owned by the business, so the department must choose a location, in which case the event space owner becomes a vendor when the area is reserved and the contract signed.
States require most vendors to be licensed. If you're considering becoming a vendor or using one, ensure you check with your state licensing office to learn about the requirements.
After that, the human resources department reaches out to decorators, which become vendors when they are hired to transform the event space into a themed party. After the theme is implemented, a catering company is contracted to provide food and beverages for the party. When the company delivers its service, it becomes a vendor to the company hosting the party.
Types of Vendors
There are several types of vendors, but in general, they all fall into one or two of four categories:
- Manufacturer: Manufacturers turn raw materials into finished goods and sell them to wholesalers and retailers.
- Retailer: Retailers are companies that buy products from other vendors and sell them to consumers. For example, Target is a vendor that sells home appliances and other home products.
- Wholesaler: Wholesalers generally buy products in bulk quantities and sell them to retailers. Some wholesalers sell directly to consumers—these are typically known as wholesaler-retailers.
- Service Provider: Service providers offer services to businesses and consumers.
Vendors are found throughout the supply chain, which is the sum of all individuals, organizations, resources, activities, and technologies used to manufacture and sell a product or service. The supply chain starts with the production and delivery of raw source materials. It ends with the sale and final delivery of the product.
Manufacturers and retailers try to eliminate as much of the supply chain as possible, as they know that the final cost of a product increases with each link in the supply chain. Typically, the supply chain consists of three parts: a manufacturer, a seller, and a reseller or, as they are more commonly known, a retailer. Vendors can be cheaper than a traditional supply chain because some of the links in the chain are bypassed.
What Is a Vendor?
A vendor is an entity that sells something. It can sell services, products, or a combination of the two to businesses and consumers.
What Is an Example of a Vendor?
Amazon, while primarily known for being an online retailer, is also a web service provider. It provides web hosting, database storage, and many more services businesses need, which are too expensive for many small businesses to buy and maintain.
What Is a Vendor vs. Supplier?
Suppliers are generally the first supply chain entity where products and services originate. A vendor purchases products and services and resells them to clients.
The Bottom Line
Vendors are entities that purchase goods and services and resell them to business clients and consumers. You find vendors throughout many business models because paying a vendor is sometimes cheaper than buying directly from a supplier.
Vendors can be businesses of any size, from a one-person hotdog stand on the sidewalk to a large vendor that stocks warehouse retailers.