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Difference Between Vendor vs. Supplier

Posted on 
June 9, 2021
Matthew Wright
Founder & CEO, Specright
Learn why Specification Data Management is the Future of Supply Chain

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. 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 between manufacturers and suppliers essential, which goes beyond mere financial transactions.

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 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 goods to the final consumer. A vendor often manufactures 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.

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 goods directly to consumers without going through intermediary distribution channels. Major retailers, like big-box retailers, maintain lists of vendors who offer finished products sourced from various manufacturers.

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 consumers.

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.

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.

Suppliers and Vendors

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 third-party management processes.

Given the foundation that your 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. 

Your relationship with vendors will be slightly different 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

Let’s put these definitions into perspective with some examples.

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 much of an expense and hassle to justify doing it all yourself. 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 or suppliers (or both), companies need an easy way to track their relationships with each, along with what they’re buying and how much it costs.

In either case, Specification Data Management software can provide a direct link to your entire suite of strategic partnerships. Managing your relationship data at the spec level can help you track materials and identify opportunities to save money and improve efficiency across the supply chain.As is the case with many industries, better data management is the future of the supply chain. Learn more about how it can help you improve the way you work.

In The Evolution of Products and Packaging, Specright CEO Matthew Wright provides a first-hand account of the trends that ushered in an explosion of SKUs and an increase in supply chain complexity that plagues manufacturers, brands, and retailers still today.

Over the course of Wright’s journey, the answer to this complexity seemed simple: to keep up, the professionals would need to embrace data to make better, smarter, more sustainable products and packaging. You’ll recognize stories of the common pitfalls organizations slip into when it comes to managing their most important data and get a glimpse into the future of how data can drive the answers to some of our most pressing supply chain challenges. Download the eBook now.

About 

Matthew Wright

Matthew Wright is the founder & CEO of Specright. Prior to founding Specright, he spent more than 25 years in the packaging industry, holding leadership positions at International Paper, Temple Inland, and rightPAQ — a packaging company he co-founded. He has also been involved in leading multiple M&A deals in the packaging industry. He sits on the Packaging Advisory Board at Cal-Poly San Luis Obispo.

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