Business Glossary

What is a Vendor?

A vendor is a person or company that sells goods or services for a profit. They can operate in a business-to-consumer (B2C) or business-to-business (B2B) environment. In B2B, vendors are often known as suppliers.

Examples of vendors

At one end of the scale, there are street vendors and market-stall holders, with global corporations such as the Alibaba Group and Amazon at the other – and countless SMEs in between.

Private individuals reselling preloved items are not considered vendors because they don’t sell items with the aim of making a profit. In fact, most private sellers make an overall loss when they resell items.

Vendors and supply chains

Supply chains are made up of a series of vendors (or suppliers) and buyers involved in the process of delivering goods or services to end customers. In principle, end-to-end supply chains can be as short as two links, but the majority have multiple stages.

As a rule of thumb, the more suppliers handle a product or service before it reaches the end buyer, the more expensive that product or service becomes because each supplier has to make sufficient profit.

As a result, companies that compete on price usually aim to keep their supply chains as short as possible and are likely to buy goods directly from the manufacturer. Companies that compete on other factors, however, may be prepared to accept longer supply chains.

Key elements of the supply chain

All companies involved in supply chains act as vendors because they need to sell their goods and services to stay in business, but they will approach the sales process in a different way depending on their stage in the supply chain. Here is a quick guide to the various stages.

The primary sector

The primary sector gathers resources from nature – examples include mining, agriculture and commercial fishing. Companies in the primary sector are vendors to companies in the secondary sector.

The secondary sector

The secondary sector transforms raw materials into goods, and includes the likes of manufacturers, processors and constructors. Companies in the secondary sector will act as vendors to the tertiary sector, and are unlikely to sell directly to customers. Generally, they work through distributors and/or wholesalers.

Distributors and wholesalers

Distributors work in partnership with manufacturers. They handle the majority of aspects of selling a manufacturer’s products. Wholesalers may buy products in bulk directly from the manufacturer, but do not work in partnership with them.

Manufacturers may choose to work only with distributors or wholesalers. Alternatively, they may use a combination of both for different target markets. For example, they may use distributors to manage sales to corporate clients but work with wholesalers to target SMEs.

The third sector

The third sector consists of business activities involving production and exchange – this includes service providers and retailers. The third sector also sells to private consumers whereas companies in the other sectors typically only sell to other businesses.

Companies in the third sector generally buy their supplies from companies in the second or third sectors. The one major exception is companies in the food industry, who may buy fresh produce directly from vendors in the first sector.

This article is for informational purposes only and does not constitute legal, employment, tax or professional advice. For specific advice applicable to your business, please contact a professional.

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