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 that are provided, rather than the manufacturer of the goods itself. However, it is possible for a vendor to operate as both a supplier (or seller) of goods and a manufacturer.

How a Vendor Works

A vendor, also known as a supplier, is a person or a business entity that sells something. Large retail store chains such as Target, for example, generally have a list of vendors from which they purchase goods at wholesale prices that they then sell at retail prices to their customers.

Key Takeaways

  • A vendor is a general term used to describe any supplier of goods or services.
  • A vendor sells products or services 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 a finished good is a vendor to retailers or wholesalers.
  • Some vendors, like food trucks, sell directly to customers.

Some vendors also can sell directly to the customer, as seen with street vendors and food trucks. In addition, a vendor can act as a business-to-business (B2B) sales organization that provides parts of a product to another business to make an end product.

Examples of Vendors

A manufacturer that turns raw material into a finished good is a vendor to wholesalers and retailers that sell the product to a consumer. In turn, retailers are a vendor for the end customer. For example, Target is a vendor for a person looking for home appliances or other products.

Large corporate events are also good examples of times when vendors are needed. If, for example, the human resources department of a large company plans a holiday party for its employees, it seeks to hire outside vendors to supply goods and services for the event. First, the department must choose a location, in which case the owner of the event space itself becomes a vendor when the date is reserved and the contract signed.

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.

Special Considerations

Vendors are found throughout the supply chain, which is the sum of all individuals, organizations, resources, activities, and technologies used in the manufacturing and selling of a product or service. The supply chain starts with the production and delivery of raw source material. 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.