Vendor vs Supplier: Essential Differences Explained

Some words are so similar in sound or meaning that they are often used interchangeably and most of the time, that’s okay. However, when it comes to concepts directly linked to operations, such as supply chain management, you must pay more attention. Take the case of vendors and suppliers.

Would you say there’s no problem acting as if vendors and suppliers are the same thing? 

Well, it might be a good idea to keep reading on because while they share some similarities, vendors and suppliers are far from synonymous. And yes, knowing about their differences can make a big difference in the success of your supply chain. 

What’s the difference between suppliers and vendors?

Put it simply, the main difference you can find between a supplier and a vendor is that, the first sells you raw materials or anything similar that your business requires for manufacturing purposes. Vendors, on the other hand, offer your products that are ready to sell.

Let’s see that with more detail 

Suppliers: Definition

Just like we just mentioned, when we speak about suppliers, we are referring to broader term that include any business providing goods or services to another business. So we can say it’s entirely B2B. Manufacturers, wholesalers, or distributors are usually considered suppliers. Another key aspect? Suppliers can be found at the beginning of the supply chain.

Vendors: Definition

If suppliers play at the beginning of the supply chain, then it’s safe to say that vendors work at the end.  Vendors sell products that are ready to be acquired by customers, so it fall under both categories B2C and B2B.

Combined roles 

On some occasions,  vendors can act like suppliers, for example, it could be the case that a company that operates as vendor, has also the capability to supply itself to sell the products under its name. 

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Key Differences between Vendor and Suppliers 

Role in the supply chain

Vendors are at the end of the line, selling products directly to consumers.

Suppliers operate earlier in the chain, providing essential resources to vendors or manufacturers.

Relationships

Vendors have a direct relationship with the customers using the products.

Suppliers typically have a B2B relationship, focusing on fulfilling orders in large quantities. 

Products

Vendors may offer a variety of products and services, often with an emphasis on customer service.

Suppliers usually provide specific materials that meet certain specifications.

Pricing

Vendor pricing can vary based on demand and customer relationships.

Supplier pricing tends to be more stable and is usually determined by long-term contracts.

Customization

Vendors, given the nature of their business, might offer customized products based on customer needs.

Suppliers, on the other side, generally stick to standardized products.

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A Typical Supply Chain 

Supplier 

This is where most companies start the journey, supplier as we have seen so far, are the source of all the materials your business needs to create the final product that’s going to be sold to your customers. 

Manufacturer 

If suppliers give you the basic components, manufacturers are in charge of using those products to create the product you’ll be selling.  Think of them as a combination of large and small factories building what your company requires. 

Distributor

Okay, so you have the product ready, but how the heck it’s going to arrive to your location? Well, that’s what distributors are for. They manage logistics and get products from the manufacturer to various retail or business destinations. 

Vendor

See? Almost at the end of the road, you can find vendors. At this point, you already know that they sell the finished products to you, whether in a store or online, and provide essential customer service. 

Customers

Here? Here’s where your business goes. You play the role of the final customer

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The Vendor Management Process 

Choosing the vendor 

Your journey begins when you decide it’s time to find the right vendor for your needs. Think about key factors like dependability, pricing, quality, and delivery schedules. Having a solid evaluation system can help you determine if a potential vendor meets your criteria. At this stage, you’ll be getting familiar with documents such as Request for Quotations (RFQs) and Requests for Proposals (RFPs) 

Define your objectives

You might be thinking, well that’s obvious, but bear with us. It’s completely essential not to overlook this step. Before jumping into contract discussions, take the time to outline your objectives. Doing this will help you to be sure that both you and the vendor are aligned and have clear expectations moving forward.

Contract discussions

One of the scenarios you’ll want to avoid is to find the ideal vendor and then sign a contract that doesn’t reflect key terms Pay close attention to the details in the agreement, as it is legally binding. Getting it right will set both parties up for success.

Onboarding the vendor

After signing the contract, it’s time to onboard your vendor. Help them grasp your company’s main processes like the way your supply chain works, policies, and procedures. Establishing effective communication channels is the best way to ensure that you and the vendor can get in touch at any moment.  Don't forget to consider using procurement software to gain full visibility into the process.

Track performance

It would be amazing if your vendors would consistently meet your expectations, but we know that’s not always the case. Keeping track of vendor performance is vital. Start by establishing key performance indicators and metrics to monitor. You can choose which metrics to focus on, but common ones include timely deliveries, product quality, and responsiveness.

Open communication

Want to minimize misunderstandings? Start communicating. Regularly share your feedback with your vendors about their performance. Providing constructive insights helps them better understand your expectations and make necessary adjustments. Plus, it shows you value their partnership and are committed to achieving success together.

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The Supplier Management Process

Identify needs

And so it begins. The first step in supplier management is to clearly define your business requirements. There’s no other way to know with certainty your requirements so don’t be shy and identify the products or services you need, remember to develop  specific criteria such as quality, quantity, and delivery timelines. By doing this you’ll feel more confident in your search for the most suitable suppliers.

Research and select suppliers

Once you know what you need, conduct deep research to detect your potential suppliers. Utilize various sources such as industry directories, trade shows, and online platforms. Evaluate suppliers based on key factors that go beyond pricing like reliability and expertise. Documents like Requests for Quotations (RFQs) and Requests for Proposals (RFPs) can help you gather the necessary aspects to make informed decisions.

Assess supplier capabilities

After narrowing down your options, it’s important to assess each supplier's capabilities. Investigate their financial stability, production capacity, and experience in your industry. You may also want to conduct site visits or ask for references to gain accurate insights into their operations and reliability.

Negotiate contracts

Alright, so you’ve selected your suppliers, the next step? Start the contract negotiations. This step is vital, as the contract will outline terms such as pricing, delivery schedules, quality standards, and payment conditions. Ensure that both parties have a clear understanding and agree to the terms to prevent misunderstandings later.

Onboard the supplier

After finalizing the contract, the only thing that’s left  is onboarding the supplier. This involves introducing them to your company’s culture, policies, and supply chain processes. Effective onboarding ensures that the supplier understands your expectations and can easily integrate into your operations.

Monitor performance

Ongoing performance monitoring is essential to ensure that suppliers meet your standards. Establish key performance indicators to analyze metrics such as on-time delivery rates, product quality, and customer service responsiveness. Regular assessments come in handy to identify areas for improvement and ensure compliance with contract terms. You can do this using a procurement software, so everything is recorded.

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How to Manage Vendors?

Choose the right vendors 

The truth is that everyone has their preferences, and what works for the company on the other side of the street might not be what works best for yours. Great vendors offer personalized service at competitive prices. Even if you only need a one-time solution, it’s important to have some standards in place. Look for vendors with industry expertise, their knowledge can give you a real advantage. Also, check their financial stability; make sure they have a solid model and good partnerships with other clients. 

Set expectations from the beginning

This an advice that never gets old, and with a good reason, because how else could you be sure that your business is getting what it needs? So it’s very helpful to clearly outline what you expect from your vendor. Aspects you must consider, include product quality, delivery timelines, and customer service standards.

Build strong relationships

Yes, expectations are important, but the key to maintaining a positive environment with your vendors is having strong relationships. Regular communication, trust, and honesty are the main ingredients to obtain better terms and more profitable experiences. Consider having open feedback sessions with your vendors so they feel like their opinions are heard. 

Monitor performance

Keep an eye on your vendors’ performance using key performance indicators that matter to your business. Whether it’s delivery times or product quality, having clear parameters to promote evaluation helps ensure you’re both on the same page.

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How to Manage Suppliers?

Establish work standards on the contract

Having a solid contract with your suppliers is a must. Make sure it covers pricing, delivery schedules, quality standards, and any penalties for non-compliance. A good contract sets clear expectations for everyone involved.

Centralize 

If you’re managing a complex supply chain, a centralized and digitized supplier management platform is a must-have. It can really simplify things for you! Tools that can make a difference include Supplier Information Management (SIM) and Supplier Relationship Management (SRM). SIM is your go-to for capturing, storing, and analyzing supplier data. SRM is more focused on building long-lasting relationships with your suppliers.

Diversification

Global supply chains are currently struggling with a lot of challenges, forcing companies to think about innovative solutions to minimize risks. For example, if your company relies solely on a tight group of suppliers, you could be threatened by unexpected disruptions in the service. It’s smart to diversify your supplier base to minimize risks associated with supply chain problems. This way, you’ll have options if anything goes wrong, plus it might lead to better pricing.

Segmentation

A fantastic way to optimize your supplier management strategy is to categorize your suppliers based on their importance and value. By recognizing and prioritizing those key suppliers, you can dedicate your attention to nurturing the relationships that are vital for a strong and resilient supply chain. Something that can bring great benefits to your business’s success. 

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Final Thoughts

And that was it 

Now you know that there are some key differences between the nature of your suppliers and vendors, you can start developing the right management strategies. Remember that in both cases you must choose the right fit based on your own criteria and analysis. Set goals from the beginning and always keep an eye in performance levels. 

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