Vendor vs. Supplier vs. Distributor: Where do your materials come from?

In today’s manufacturing landscape, understanding where your materials are coming from, and improving collaboration with those sources, is crucial for preventing shortages and navigating supply chain disruptions. In this blog, we break down vendor vs. supplier vs. distributor—and even talk about wholesalers as well—how they compare, and how manufacturers can improve collaboration.

What is a supplier?

A supplier is a business-to-business (B2B) entity that provides goods and services to customers directly from the manufacturer. They can also be the manufacturer—for example, the supplier of raw materials like lumber, steel, or oil. A flour milling company is a supplier who sells to a vendor, like a bakery, who then sells to the final customer. A supplier that isn’t a manufacturer merely acts as a middleman, obtaining product from the manufacturer and supplying it to other businesses.

Vendor vs. Supplier

In manufacturing, a supplier sells to other businesses and supplies directly from the manufacturer or are the manufacturer themselves. With physical products, vendors typically sell to end customers and get their products from suppliers. Additionally, although suppliers usually work with physical products, vendors are a more typical term businesses use for those who lean more towards software and/or services. 

Sometimes the line dividing supplier and vendor is blurred. Manufacturing companies sometimes refer to any entity they contract with as a supplier or a vendor. Another example of the line being blurred is a vendor who produces their own goods. A person who sells a product in the market is a vendor, but that same person may also own a production center and provide bulk items to themselves and similar companies. In this case, they’re also a supplier.

What is a vendor?

A vendor is usually a business-to-consumer (B2C) entity that sells goods and services to the final customer. A great example of a vendor is a big box retailer. Big box stores sell many different products to their customers, all at final sale, meaning the goods are not resold. Typically, manufacturers separate suppliers (providing physical products) from vendors (providing services and software), so vendors can also function as  a business-to-business (B2B) entity when supplying services and software. Companies can serve as a vendor to other businesses because they provide software and services, but do not “supply” any physical goods to the company.  

Software vendors are also often categorized as “3rd party vendors,” which is a vendor that has a written agreement to provide products or services on behalf of another company. SaaS companies are often considered 3rd party vendors as they provide software directly to other companies and may service those company’s customers directly on the company’s behalf. 

Vendor-managed inventory, or VMI, is a type of inventory policy used by manufacturers—a vendor keep is contacted to stock of materials available for a customer, typically with an agreed-upon service level. This reduces the amount of inventory management a customer has to do in order to manage their goods.

Vendor vs. Distributor

While vendors and distributors both sell to the final consumer, distributors house products in a warehouse and ship to customers. Both distributors and vendors may have direct relationships with suppliers, and distributors may be the primary supplier to a vendor whose end products are sold in brick and mortar stores. Vendors, instead of housing materials in a warehouse, typically stock a brick-and-mortar store with products to sell, and what you see is what you get. If the store is out-of-stock, you are out of luck. 

What is a distributor?

A distributor buys products from a supplier, houses them in a warehouse, and then sells them to vendors or end consumers. Distributors can be B2B or B2C depending on what they sell. Distributors take care of the often complex and burdensome purchasing of raw materials for large companies. This simplifies the purchasing process for large companies and allows them to go through just one distributor to get their goods. Distributors usually keep stock of certain products so these types of companies can have quick access to them. One great example of this is an online vendor who distributes orders from their various warehouses of product. They don’t make products or “add value” (i.e. they don’t make any changes to the products they buy), so their warehouses are just places of distribution for goods.

Distributor vs. Supplier

Distributors can sell to the final consumer or other businesses, while suppliers almost always sell to other businesses that will eventually sell to the final consumer. Distributors and suppliers may also both provide physical products to a company. In the case of distributors, they’re not the actual manufacturer of the product. They merely stock goods for the manufacturers to pull materials from. When there are issues with the materials, the distributor often acts as a mediator between the true supplier and the manufacturer. Alternatively, the manufacturer may choose to work directly with the supplier for future procurements to save on potential costs and strengthen their relationships with suppliers.

What is a wholesaler?

A wholesaler is typically a company who manufactures goods in bulk with the intention of providing them to other companies or individuals to resell at a market price. Wholesalers of water bottles, for example, may sell to any company that wants to private label their own brand of water bottles to resell. 

A wholesaler may also have distributors or suppliers. In some cases, the wholesalers manufacture a portion of their products so they can provide bulk products at low cost, but they also have other suppliers of products in bulk that they do not make, which they sell to companies that  then repackage and sell those products.

Distributor vs. Wholesaler

Distributors and wholesalers are very similar in that they both sell products to businesses or consumers that they house in a warehouse. The distinction is that distributors keep products in stock but don’t manufacture them, while a wholesaler is typically a manufacturer that intends to supply other companies with products they can white-label or repackage into other products. White-labelling is when a company rebrands products that they receive from a wholesaler so the product appears to be their own. The goal of a wholesaler is to provide companies and/or consumers with bulk goods at a discounted cost, whereas a distributor is not as concerned with bulk or cost and is oftentimes more concerned about the product and material availability (i.e. lead times). They typically only provide one part or parts in bulk.

Conclusion

Hopefully, this helps clarify some of the differences between the different entities in the supply chain. All have one similar goal: to provide products to the next level of the supply chain.

Keep in touch with your suppliers using LeanDNA’s Supplier Connect.

LeanDNA bridges the gap between our customers and their suppliers with Supplier Connect—a number of report views and workflows available for collaboration with your suppliers, and performance scorecards to track their progress and accountability. 

Curious to see how it can work for you?

FAQ

Supplier relationship management is the process of evaluating suppliers—their contributions to your business and the strength of the relationship you have. Once that is determined, a plan is made for fostering a positive relationship with the suppliers.

They can be! Some suppliers manufacture the goods that they sell, some merely act as a middleman between the manufacturer and another business that they will sell to.

Vendor management may refer to a couple of different ideas. One might be a business managing the performance of their vendors or suppliers through a set of KPI’s such as On Time Delivery (OTD). The other might be the concept of having a vendor manage the inventory they produce or supply, which is often done at a customer and is called vendor managed inventory or VMI.

Vendor managed inventory, or VMI, is a type of inventory policy used by manufacturers where they contract a vendor to keep stock of materials available for a customer, typically with an agreed-upon service level, in order to reduce the amount of inventory management a customer would have to do in order to manage their goods.

A VMI system is most typically implemented in a bin or kanban system, whereby a vendor sets up 2 to 3 bins of inventory, and then comes by regularly to the customer’s warehouse (or manages it all digitally) and makes sure to always have a full bin of materials.

In manufacturing, OTD stands for On Time Delivery which is typically represented as a percentage of the deliveries a supplier made to a customer on time in a given time period.

For example, if a supplier owed a customer 100 purchase order lines in a given month, but only delivered 95 of them in that month, the on time delivery percentage could be said to be 95%.