Vendors. Suppliers. Although you’ll often find these two terms used interchangeably, the important distinctions between them can have critical implications for your business operations.
Here, we’ll discuss the key differences between a vendor vs. supplier and why the differences matter for your business operations. By the end of this article, you’ll have a better understanding of what sets these two terms apart, which will help you make informed decisions to improve your operational efficiency and prevent costly errors in your third-party risk management and supply chain management.
Vendor vs. Supplier: Not Just Semantics
Many businesses use the terms vendor and supplier to mean the same thing when referring to all third-parties that supply them with products or services.
One sells, and one provides — the clue is pretty much in the words. But it's actually more complex than what's on the surface.
If we zoom in on the two definitions, we'll see there's some nuance to the two meanings that's often overlooked or misunderstood. Let’s take a closer look.
According to Gartner, a vendor is the last link in a supply chain before a product or service reaches your business, which is the final customer.
However, vendors might use a mix of business-to-consumer (B2C) and business-to-business (B2B) sales models to sell products or services. For example, an e-commerce giant like Staples might sell a range of products directly to end consumers online but also provide enterprise deals offering company branding and large quantity discounts to large organizations.
Bringing it back to your organization, your vendors have a transactional relationship with you, meaning that you typically only interact with them when you need something specific.
And, as you only pay them at the time of a transaction, you'll usually choose vendors based on the specific goods or services they're offering and the competitiveness of the price they're charging in relation to the market.
Pretty straightforward so far, right?
On the other hand, as defined by AccountingTools, the term supplier refers to businesses that provide goods and services to another organization. Suppliers “provide the bulk of the value” of the products.
Suppliers are integral to your value chain, whether they provide raw materials and components to manufacturers or technological infrastructure to SaaS platforms. For example, look at the many tech operations built on cloud infrastructure platforms like Amazon’s AWS.
You could argue that your suppliers also sell you something but, unlike with vendors, you're likely to have a longer-term relationship with them as they'll be providing several operations-critical goods or services to your business over an extended period.
Because of where they sit in the supply chain link, you’ll find suppliers in B2B relationships only — and the procurement process for them is usually based on factors like quality, reliability, and the overall opportunity cost of doing business with them.
What Roles Do Vendors vs. Suppliers Play in Your Business Operations?
Knowing the main differences between how vendors and suppliers interact with your business is crucial for helping you know when and where it's appropriate to fine-tune your third-party management processes. Being unaware of the distinction can affect the overall cost structure and risk exposure in your supply chain.
Here’s what you need to know to keep you on top of your third-party risk management and increase your competitive advantage.
Since your suppliers (think managed IT service providers, manufacturing partners, or even utility companies) play such a foundational role in your day-to-day operations, it’s easy to consider them an extension of your own company. However, any of their shady business practices could leave your operations in shambles.
In fact, your suppliers’ role in your value chain makes them a potential point of failure in your business operations, especially where the quality of their input during manufacturing can make or break your final product.
During your onboarding processes, you’ll need to make sure your due diligence and risk assessment procedures are on point. This means using a platform like Certa to collect the right information upfront and thoroughly vet their internal policies before you work with them on an ongoing basis.
Your business relationship with your vendors differs a little since you don't rely on them for ongoing services or continuous goods delivery in the same way as you do with suppliers.
Depending on how you structure your vendor relationships, however, they might also play a role in the ongoing delivery of your services to your customers — for example, you might use several logistics partners to, literally, deliver parts of your physical product suite directly to the end consumer on your behalf.
Regardless of how involved vendors are in the later stages of your business processes, it's important to keep track of how they conduct themselves to avoid entanglements in messy reputational issues, among other situations, in the future.
Relationship Management Differences Between Vendors vs. Suppliers
There’s no doubt that good relationships with all your service providers will get you better efficiency, lower costs, and improved customer service. On the other hand, if your relationships are strained because of poor communication and mismanagement, you’re gonna have a bad time with delays and higher costs, and you’ll see a drop in customer satisfaction.
A good supplier relationship should be mutually beneficial, and both parties should be able to reap the rewards of working together — whether that’s through identifying new opportunities or developing innovative solutions to increase your competitive edge.
The key difference between vendor vs. supplier relationships is the level of commitment they’ll have in relation to your business relationship.
As we alluded to earlier, it’s likely you’ll be in a longer-term relationship with your suppliers, which gives them the opportunity to get comfortable with your organization’s policies. A vendor’s short-term transactional focus might mean they’re not as interested in building a long-term partnership with your business.
Regardless, managing relationships with reliable and trustworthy third parties is vital to keeping your operations running smoothly and avoiding costly mistakes along the way.
When you call on Certa as a partner you can trust to manage your vendors and suppliers, you can dramatically reduce your company's overall risk exposure.