Vendor vs. Supplier: Which One Does Your Business Need?

What Is A Supplier?

A supplier is a person or a company that supplies large amounts of raw materials to manufacturing businesses. These raw materials, such as tools and components, are essential resources required for production processes. Suppliers serve as the initial link in the supply chain, thus establishing critical Business-to-Business (B2B) relationships. 

Since suppliers hold an important position in the supply chain and form the foundation for any manufacturing company, the lack of primary supplies could lead to unfinished products, affecting a company's production processes and end products. This can affect consumer demands and satisfaction. The procurement for suppliers focuses on factors like quality, reliability, and the cost of engaging in business with them. These considerations are crucial because the suppliers' offerings are integral to your business's operational success.

Manufacturing businesses order bulk quantities of the required materials from suppliers depending on their specific needs, and these suppliers ensure the timely delivery of the required materials. This makes building trustworthy partnerships and good relationships between manufacturers and suppliers essential, which goes beyond mere financial transactions. Effective supplier management is crucial to maintaining these long term relationships, ensuring quality products, reliability, and the smooth operation of the supply chain.

Types of Suppliers‍

Specright works with various types of suppliers to support their supply chain management solutions:

• Raw Material Suppliers: These suppliers provide the essential raw materials needed for production, such as metals, plastics, and chemicals.
• Component Suppliers: They supply parts and components used in manufacturing finished goods.
• Packaging Suppliers: These suppliers provide packaging materials and solutions to ensure the safe transport and presentation of products.
• Logistics Suppliers: They handle the transportation and warehousing needs to ensure timely delivery and storage of goods.

Service Providers: These include managed IT services, quality management, and other support services essential for business operations.

Example

Let's look at an example to understand why the supplier-manufacturer relationship is important and how their collaboration can affect the supply of a product to the market.

Imagine a situation where the demand for a specific product- say, a detergent - suddenly goes up. As a response to this surge in demand, the available stock of detergent gets sold out in just a few days, even though there was enough supply to last a whole month. The manufacturer will then urgently place purchase orders for more raw materials with the suppliers to replenish the stock as quickly as possible and continue to meet the rising demand.

The suppliers make every effort to provide the requested supplies so the production process can go uninterrupted. This is made possible by leveraging their established relationship, which allows the manufacturer and suppliers to collaborate and get the product ready in time to reach the market during peak demand, ensuring timely responses and meeting customer needs.

What Is A Vendor?

A vendor is an individual or a business entity that directly sells final products to the final consumer. A vendor often manufactures physical products that can be stored and sold later or acquire these products from other manufacturers or distributors and sell them to individual or business customers. Due to their position in the supply chain, which is that of the last link, vendors often deal directly with consumers, striving to maintain positive relationships on both sides of the business, i.e., B2B and B2C. Vendors typically handle small quantities compared to suppliers.

In a supply chain process, vendors are usually managed and monitored through warehouse or vendor management systems. Establishing close partnerships with vendors allows companies or individuals to easily minimize costs and enhance product design. Comparing prices is common in these relationships to achieve the best outcomes.

Vendors sell finished products and provide goods directly to consumers without going through intermediary distribution channels. Major retail stores, like big-box retailers, maintain lists of vendors who offer finished products sourced from various manufacturers. Vendors work with Small businesses to supply unique and specialized products that help differentiate them in the market.

Types of Vendors

Specright is involved with various types of vendors across multiple industries:

• Manufacturing Vendors: Providing essential tools and machinery for production processes.
• Retail Vendors: Supplying finished goods directly to retailers for sale to consumers.
• Dropshipping Vendors: Managing inventory and shipping products directly to customers on behalf of businesses.

IT Service Vendors: Offering managed IT services and technology solutions to support business operations.

Example

Let’s understand how the vendor-manufacturer relationship works. Suppose Unit A is responsible for manufacturing stylus for a reputable mobile brand. Upon production, Unit A sells this product in large quantities to Unit B, a wholesaler. Unit B, in turn, distributes these products to retailers, who sell them to end users offline and online, which could either be other businesses or individual consumers. In this scenario, Unit A serves as the vendor for Unit B, while Unit B functions as the vendor for the retailers the products were sold. These retailers will further sell the products to their respective customers through their offline and/or online stores, assuming the role of vendors for these end customers.

Supplier vs. Vendor: A Brief Breakdown

Some sources define the term supplier as a business or person that make goods available to another business or service. Suppliers are often referred to as the first link in a supply chain, existing strictly in a B2B relationship. By contrast, a vendor is a business or person who purchases products from a company, then sells them to someone else. They’re often considered the last supply chain link and can participate in business-to-business (B2B) or business-to-consumer (B2C) relationships. These key differences highlight the distinct roles both play in the supply chain.

Another notable difference is that vendors are typically in the business of providing items that can be inventoried, while suppliers deal more in raw materials that will be turned into something else. In this comparison, vendor relationships are usually focused on price comparisons, while supplier relationships are more attuned with how the supplier influences the quality of the product.

What Roles Do Vendors vs. Suppliers Play in Your Business Operations?

Understanding the fundamental differences in how vendors and suppliers interact with your business is crucial for optimizing your supply chain management processes.

Suppliers, such as managed IT service providers, manufacturing partners, or utility companies, set for your business's daily operations, it's natural to consider them a vital part of your company. Considering their initial position in your supply chain, they can become a point of failure if the quality of their supplied raw materials is inferior and fails to match your manufacturing standards. It is also necessary to be wary of any questionable business practices on their part, as they can severely disrupt your operations. 

Vendor relationships differ because their involvement in your business is not to the same extent as suppliers. Vendors do not provide their services or goods on a continuous basis as suppliers do. However, based on how you establish these relationships within the company, vendors could have a role in the delivery of your goods and services to customers.

Regardless of the extent of vendors' involvement in your business processes, monitoring their activity is necessary to avoid unfavorable situations arising from misconduct. 

To safeguard your business, conducting thorough onboarding, practicing due diligence by doing a risk assessment, and having supplier and vendor interactions on your radar become essential. Utilize a centralized platform to collect all necessary information upfront and check the suppliers' internal policies before embarking on a professional journey with them.

Illustrating the Vendor vs. Supplier Relationships

Imagine you own a restaurant and serve several types of soda. You order your soda from a vendor instead of a supplier because mixing, canning, or bottling, and storing your own soda is too impractical. You probably have a contract with a particular vendor to supply your restaurant with all its soda.

Now, let’s say you’re a health-focused restaurant that specializes in high-quality, organic, made-from-scratch meals. You’ve partnered with several local farms to supply you with ingredients that you use in your kitchen. These farms would be considered suppliers, as your company is directly connected to the integrity of their products. The supplier is considered a partner in the business, helping to enhance your company image while providing a mutually beneficial business relationship.

Specification Data Management: A Common Link with Vendors and Suppliers

Regardless of whether you use vendors, suppliers, or both, companies need an easy way to track these relationships, including what they’re buying and the costs. This is essential for managing a range of products and ensuring smooth operations.

Specification Data Management software can provide a direct link to your entire suite of strategic partnerships. Managing your relationship data at the spec level helps track materials and identify opportunities to save money and improve efficiency across the supply chain. Better data management is the future of supply chain optimization. Learn more about how it can help improve your operations.

In "The Evolution of Products and Packaging," Specright CEO Matthew Wright discusses the trends that increased SKU complexity and supply chain challenges. Wright emphasizes the need to embrace data for better, smarter, and more sustainable products and packaging. Download the eBook now.