What is a Vendor and How do Vendors Work? [w/Examples]
March 01, 2023
What is a vendor?
A vendor sells tangible goods to consumers, supplies materials to help enterprises produce their goods, or provides B2B services and platforms to help keep other businesses well-oiled and fully operational.
The description above is simply a glimpse of what it means to be a vendor in the present day.
In truth, being a vendor entails a broader and more interesting setup worth exploring.
This blog will help you understand what defines a vendor, the scope and process of their work, and the different types of vendors worth learning about.
Key Takeaways
- A vendor sells goods or services to a specific customer, entity, and even a fellow vendor.
- Vendors acquire and distribute services and goods, thereby serving as a link that connects manufacturers to a broad range of clientele.
- There are six types of vendors: Vendors and Suppliers, Business-to-Business (B2B) Vendors, Service Providers, Manufacturers, Retailers, and Wholesalers.
- A typical buying cycle starts with a customer sending a purchase order and ends with the customer paying the correct amount for the goods acquired.
What is a Vendor?
A vendor sells goods to a specific customer demographic. As an integral part of the supply chain, vendors scour the marketplace for the perfect supplier where they can acquire the specific items or goods they want to sell.
Vendors can sell their goods through a physical store or a virtual shop—e-commerce platform orsocial media.
It all depends on the type of products they sell and their target demographic. For instance, when vendors purchase goods to sell, they typically do so at wholesale prices, then sell them at retail rates to appeal to their buyers.
A vendor may also procure raw materials or supplies to create their products. Examples of products and items typically sold by your average vendor include cosmetics, clothing, personal care products, video games, food items, clothing, and toys.
Why are Vendors Important?
Vendors are part of the supply chain and the purchasing cycle, and their role goes beyond selling and making profits.
From a marketing perspective, purchasing from a vendor establishes a type of professional relationship that could be long-term or short-term. The moment they make a successful sale, they have contributed to the continuity of a business’s operations or satisfied the specific needs of a customer.
Choosing the right vendor also means equipping one’s business with a practical, balanced, and steady supply chain of the resources they need.
Different Types of Vendors and Examples
There are different types of vendors, and their distinction depends on who they are catering to and the type of goods they are selling. We’ll go over them in more detail in the following section.
#1. Vendors and Suppliers
Vendors and suppliers are the starting point of most supply chains. As the starting point of a supply chain, suppliers provide the materials or products to be sold by the vendors.
In turn, vendors sell these products to the customers until supplies run out, at which point they have to contact the supplier once again to replenish their stocks. One of the most popular examples of vendors and suppliers is Amazon Web Services.
#2. Business-to-Business (B2B)
Business-to-Business or B2B vendors mainly sell to other vendors, entities, or businesses. They provide the materials needed by their clients to deliver services to their target customers.
B2B entails a more complex and large-scale transaction because there are more stakeholders who pitch in on the decision-making process. Also, it is not enough for B2B vendors to be familiar with the products and services they are selling.
Their clients expect them to have expert-level knowledge in their field. Business-to-business vendors sell platforms and software services for customer support, market research, and digital marketing.
#3. Service Providers
Service providers sell their skills as their main product. They can either be consultants or advisors, or work in law firms.
They are quite similar to B2B vendors, only this time the services they sell are for aiding in the maintenance of business operations. Telecommunications, insurance, and network service providers are also examples of vendors whose main products are their expertise.
#4. Manufacturers
Manufacturers research, develop, build, and produce sellable products from raw materials. A manufacturing vendor distributes the goods to both wholesalers and retailers.
Some of the biggest names in the manufacturing business include Apple, Nike, and the Volkswagen Group of America. Country-wise, Japan, China, and the US are the top three manufacturing countries in the world.
#5. Retailers
Retailers acquire the goods they sell from a direct manufacturer or from a wholesaler. They then sell the products to consumers or end-users individually.
Once retailers purchase the items from their manufacturer or wholesaler, they have the power to mark up the prices of their products. Therefore, it is up to the retailer to set the prices based on the projected costs and target ROI.
#6. Wholesalers
A wholesaler buys goods from manufacturers in bulk. Then, they keep the large quantities of products in a warehouse or storage facility until they sell them to retailers or other businesses at discounted rates.
eBay, Alibaba, and Costco are three of the most globally recognized wholesaler companies.
How do Vendors Work?
A vendor’s work process entails four core steps. Read more about them in the section below!
#1. The Buyer Purchases the Vendor’s Goods
Whether a vendor sells their goods online or through a physical store, the moment a buyer makes a purchase marks the very start of a vendor’s work.
If the vendor is a B2B seller or a manufacturer, they may receive a purchase order from their clientele. The purchase order enumerates the type of item the customer or buyer wishes to obtain, the item rate per piece, the number of items the buyer wants to purchase, the total cost, and their shipping information.
#2. The Vendor Delivers the Goods and an Invoice
Upon receipt of the purchase order or payment, the vendor issues an invoice. The invoice provides a clear and concise description of the services or goods delivered to the buyer or customer.
Additional information included in the invoice are:
- Invoice number
- Name and contact information of the vendor
- Name and contact information of the buyer
- Total cost of the purchased items
The payment terms agreed upon between the buyer and vendor must also be defined clearly.
Payment terms include the payment due date, payment methods accepted by the vendor, and discounts applicable to the purchase. Some examples of payment terms are 2/10 30 net, stage payments, and Cash on Delivery (COD).
#3. The Buyer Reviews the Goods and Pays the Invoice
The buyer examines the invoice and compares all the information with the goods. The items should match the description declared on the invoice, from the quantity of the items to the type of goods down to the quality and total amount.
If the buyer confirms that the invoice contains accurate information consistent with the purchased goods, they will pay the vendor.
#4. The Buyer Uses the Delivered Goods or Services
The buyer uses the purchased goods or services according to their needs. For instance, if someone purchases customer support software, they will use it to augment their services.
Or, a business may have purchased raw materials to produce the goods they sell to their customers, making them a vendor in the process. In this sense, a buyer doesn’t always have to be a customer who serves as the final link in the supply chain.
They may start a new chain as a supplier, vendor, wholesaler, or retailer.
Final Thoughts
Vendors are indispensable to any buying cycle, whether they sell goods for end-users or services for fellow vendors, suppliers, or businesses. They are responsible for distributing services and goods to the appropriate customer or clientele who will greatly benefit from them.
If you’ve found yourself an excellent vendor who caters to your expectations and requirements, make it a point to maintain a solid buyer-seller relationship with them.
If you are a vendor, it is always best to dig deeper into your target customers’ needs, check any market trends that may affect your business, conduct competitor research, and learn a few pointers from them.
Lastly, try to estimate any additional costs you may incur to promote your services. Nowadays, it is challenging to boost sales and profit without exerting effort in marketing the goods you are selling.
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