Vendor

What is a Vendor?

A vendor refers to an individual or company that sells something to another individual or entity. Vendors can be utilized at different spots in the supply chain, and with multiple occurrences throughout. The term vendor can encompass retailers or suppliers broadly with what is often a component in a larger product.

Below, we will look at some different types of vendors and the different customer bases they serve in the market. Through examples, we can better contextualize the different ways vendors operate and their purpose within the supply chain.

Different Types of Vendors

1. B2C (Business to Consumer)

The B2C type of vendor sells directly to the consumer. They sell generally completed products to the end-user or even product components. It can be a retail store, such as the Gap that sells clothing, or, it can also be a retailer like the now-defunct Radio Shack that sold electronic components, acting as a specialty vendor for the end consumer.

A vendor can be an online retailer or even someone selling hot dogs at a ballpark. Some vendors even specialize in providing consumer services. Vendors provide a wide-ranging volume of products to the end consumer. But how else do they operate?

2. B2G (Business to Government)

The B2G type of vendor sells to the government. In the defense industry, there are many vendors that sell different types of equipment through government contracts. Some examples of B2G vendors include Raytheon and Lockheed Martin, which sells defense products and components to the Army.

Another type of B2G vendor can be a government consultant. They are individuals who might have built a successful career for themselves in the private sector and have begun contracting out their expertise to the public sector.

3. B2B (Business to Business)

A B2B vendor is one that sells primarily to other vendors. An example of a B2B vendor is Panasonic, which sells batteries to Tesla, or microchip manufacturers, such as Intel or Advanced Micro Devices, which sell components to personal computer manufacturers. The items are being sold to businesses and will, in turn, generally be stored in inventory either for a short or long period of time (depending on the product).

For the purposes of our computer hardware example, they are likely to be stored in inventory for a short period because of the short refresh lifecycle of flagship electronic components like Intel microprocessors.

Vendor Strategy

When an entrepreneur is looking at starting a business, they are not only limited to trying to solve a problem a consumer is facing, but they can expand the scope of their customer discovery to determine the type of supply chain vendor problem they can solve for businesses or the government.

Understanding the different ways a vendor can insert themselves in the supply chain allows companies to identify new opportunities to compete and gives room for new competitors and companies to emerge and enter the market. After all, the more vendors compete, the lower the cost of production on our favorite items will be, and the more money we can save as consumers.

Vertical Integration?

Understanding the role of the vendor in the supply chain can also help business consultants or executives spot deficiencies or find new ways to vertically integrate to perhaps even manufacture their own components and become a vendor for their own products.

Tech giant Apple is an example of a company that follows a similar strategy with regards to microprocessors, as they now manufacture many of the chips found within their highly popular iPhone.

The Vendor, the Supply Chain, and You!

When we, as consumers, understand how supply chain management works, we can better understand and contextualize product pricing and understand why certain types of products command a premium. The movement of a product in the process of development down a supply chain sometimes necessitates many vendors that provide the manufactured, and sometimes specialty, components to create a complex product.

Becoming a vendor of a specialty component can be a niche and lucrative business opportunity that may not be obvious at first glance. Vendors are everywhere, and the more we learn about what goes into making a product, the more we understand their importance.

More Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Franchise
• Total Addressable Market (TAM)
• Vertical Integration
• Warranty Expense
• See all accounting resources