What Is a Vendor? (With Definition, Types and Examples)
By Indeed Editorial Team
Updated June 23, 2022 | Published February 4, 2020
Updated June 23, 2022
Published February 4, 2020
Many businesses need goods to operate and ensure success. Vendors play an important role in the supply chain process for businesses that sell goods. Knowing what a vendor is and how vendors work can help you better understand the supply chain process.
In this article, we discuss everything you need to know about vendors, including what a vendor is, the different types of vendors and how they work.
A vendor is a person or business that purchases goods and services from distributors and resells these items to consumers or other businesses.
The five types of vendors are manufacturers, wholesalers, retailers, service and maintenance providers and independent vendors and trade show representatives.
The typical process of a vendor entails a buyer submitting a purchase order, a vendor delivering the order, the buyer paying the invoice and the buyer using or selling the goods and services.
What is a vendor?
A vendor is an individual or company that supplies goods and services to businesses or consumers. Vendors buy products or services from distributors and resell them to others, usually individual consumers. Their main goals are to monitor customers’ interests and to have enough goods in stock to meet demand.
You could also consider retailers to be vendors because they supply products directly to consumers. However, the term vendor is typically only used to describe the immediate seller of goods or services.
5 types of vendors
There are several types of vendors that have different roles in the supply chain process. Here are five types of vendors and their roles:
A manufacturer is an individual or company that researches, develops and produces goods from raw materials to sell. Manufacturers usually distribute the goods they make to wholesalers or retailers, who then sell the goods to consumers. These consumers become the end-users of the product.
A wholesaler is an individual or company that sells goods to other businesses. Wholesalers purchase large quantities of goods in bulk directly from manufacturers. The wholesaler then stores the goods and sells them to retailers at discounted prices.
A retailer is an individual or company that sells goods to individual consumers who become the end-users of the product. Retailers may purchase their goods directly from the manufacturer or from a wholesaler. The retailer then marks up the price of the goods it sells to consumers so the retailer can make a profit on the sale.
Related: 11 Steps To Become a Retailer
4. Service and maintenance providers
Service and maintenance providers sell the performance of services or maintenance to a business. These services usually relate to the daily tasks of a business that allow it to run smoothly. Examples of the services that a service or maintenance provider may offer include accounting, landscaping, cleaning, banking, consulting, insurance and transportation services.
Read more: What Is Service Provider Management?
5. Independent vendors and trade show representatives
An independent vendor is an individual or business that sells goods to individual consumers directly. A trade show representative is an individual who creates crafts or products that they sell to consumers at trade shows. A trade show is an event at which individuals and businesses demonstrate goods and services that are available for purchase.
How do vendors work?
Different types of vendors have different roles in the supply chain process, so the process of how a vendor works varies depending on the type of vendor. Here’s the typical process of a vendor that’s a manufacturer or wholesaler, a buyer that’s a retailer and individual consumers:
The buyer submits a purchase order
The first step in the vendor supply process is for the buyer purchasing the vendor's goods to submit a purchase order to the vendor. The purchase order has information about the goods or services the buyer wants to purchase from the vendor, including the price, shipping information, delivery date and other terms of purchase. A buyer usually places a purchase order with a vendor via phone, fax or the internet.
Read more: A Guide to Purchase Orders (With FAQs)
The vendor delivers the order and an invoice
The next step is for the vendor to fulfill the purchase order. The vendor gathers the goods that the buyer has ordered and delivers the goods or services to the buyer per the terms outlined in the purchase order. Typically, the vendor delivers an invoice to the buyer at the same time they deliver the goods or services ordered.
The buyer reviews and pays the invoice
Once the buyer has received the goods or services that they ordered and the invoice for the order, they compare the invoice to the purchase order and the receiving report. The buyer then pays the invoice once they’ve confirmed the details in the invoice are all accurate. The invoice may include details like the products ordered, their quantities and their prices.
The buyer uses or sells the goods or services
The buyer then either uses the goods or services they ordered from the vendor for their own business or sells the goods or services to individual consumers, who are the end-users of the products.
For example, a retail buyer may use a vendor to purchase office supplies to use within its store, but it may use a separate vendor to purchase goods or services to sell to consumers through the retail store. If the buyer sells the goods or services to another individual or company, then the original buyer may become the vendor.
Related: Buyer Resume Examples and Templates
Why are vendors important?
Vendors are important because they supply businesses with both the goods they use within their businesses and the goods they sell to consumers. Many large retailers work with several different vendors.
Since there are vendors that fall into different categories of the supply chain, it’s important for businesses to know who their vendors are and to maintain good working relationships with them. Strong vendor relationships can help a business be successful by making the supply chain process more efficient and cost-effective for the buyer.
Related: Learn About Being a Buyer
Examples of vendors
Here are some examples of vendors:
Manufacturer vendor example
A manufacturer in the pharmaceutical industry uses raw materials to produce items like cough syrup, antibiotics and pain medicine. The manufacturer distributes these goods to retailers such as retail pharmacies and drugstores. The retailers then sell the medicine to consumers, who are the end-users.
Wholesaler vendor example
A specialty wholesaler in the food industry sells baked goods such as bread, pastries and cakes to retailers. The business purchases food products from several food manufacturers. It then sells the different types of food to a retailer in large quantities at lower prices.
Retailer vendor example
A large retail discount store chain sells food, clothes, home decor and other personal goods directly to consumers. The chain stocks its inventory by buying items in bulk from manufacturers and wholesalers. It sells these items to customers via its in-person stores and its online stores.
Service or maintenance provider vendor example
A cleaning vendor offers janitorial services to businesses that want to maintain their facilities. An accounting firm hires the cleaning vendor to keep its office clean for clients and employees. The vendor handles cleaning the bathrooms, mopping the floors and vacuuming the office to allow the firm to proceed with its daily tasks.
Independent vendor example
An independent farmers' market stand sells fresh fruits and vegetables directly to customers. The stand sells its food to many small-business owners, such as local restaurants and bakeries. It also sells produce to individual consumers who are visiting the farmers' market.
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