What Are Vendors? Definition, Types & Examples (2026)

A vendor is any party that sells goods or services to another party. They are crucial players in the supply chain, bridging the gap between manufacturers and consumers.

From local makers at farmers markets to global ecommerce giants like Amazon, vendors come in all shapes and sizes. The vendors you choose to work with will dictate your reliability in meeting customer demands, the quality of your offerings, and your overall profit margins. 

Ahead, learn what a vendor is and the different types of vendors. This will help you identify the best fit for your business, enabling you to thrive in today’s competitive market.

What is a vendor?

A vendor is an entity—either an individual or a business—that provides goods or services to companies or consumers for profit. Vendors are everyone from manufacturers to specialized suppliers and third-party resellers who distribute products throughout the supply chain. They can be local artisans or multinational corporations like Foxconn.

How vendors work

Vendors do more than supply products. They can be manufacturers, wholesalers, or service providers, each with different levels of involvement, based on their role. 

Categorizing vendors helps you realize which are critical to your retail operation and which are easy to replace if things go south. In sophisticated retail environments, this involves category management, in which products are treated as mini-business units to maximize profitability. 

Here’s a quick breakdown of the three ways in which vendors function:

Business-to-consumer (B2C) transactions 

Vendors source goods to meet their B2C clients’ needs. For example, a vendor supplying a retail chain like Target buys goods at wholesale prices and sells them to these stores. These vendors typically have robust operations to plan, acquire, and deliver the contracted goods and services.

Business-to-business (B2B) transactions 

Many vendors operate in the B2B space, supplying parts or components needed by other businesses to make the final product work. For instance, a tech company making smartphones needs to source microchips from various vendors. 

Provision of services 

Vendors can also provide services. Suppose a marketing agency wants to create a website for a client. It might hire vendors specializing in web design, content creation, and graphics. Each vendor brings their expertise, helping the agency deliver a successful and functional website.

The vendor supply process

Vendor selection

First, identify your business needs, whether it’s raw materials, IT support, or event planning. 

Conduct market research for effective vendor sourcing—understand their capabilities, reputations, pricing, and reliability. Sending out requests for proposals (RFPs) or requests for quotes (RFQs) can also help you get detailed bids from potential vendors.

When comparing vendors, look at:

• Financial stability. Check if the company is on shaky ground. You don’t want to sign a contract with a vendor that might go out of business in three months.
• Compliance and certifications. Make sure they have the right licenses and legal compliance for your industry. If they cut corners on regulations, you’re the one who will end up with the legal mess.
• Scalability. Think about the future. If your business doubles in size next year, can this vendor keep up with your orders, or will they hold you back?
• Reliability and quality. Look at their track record. Do they deliver on time, and is the work valuable?

Evaluate and shortlist proposals based on cost, quality, delivery time, and reputation. For crucial or long-term partnerships, consider conducting audits or site visits to ensure vendors meet all necessary standards.

A formalized vendor management strategy is important here. It’ll establish the framework for sourcing, vetting, and communicating with vendors so your business can scale efficiently. 

Contract negotiation and onboarding

Once you’ve chosen a vendor, you’ll need to negotiate contract terms. This includes setting prices, payment terms, delivery schedules, quality standards, and penalties for non-compliance. Have your legal and compliance teams review contracts to ensure everything is clear and fair.

Next comes onboarding, where you integrate the vendor into your company’s systems, setting up accounts, and providing necessary training. This step is crucial for both product and service vendors.

Order placement and fulfillment

Submit a purchase order (PO) to the vendor, outlining the goods or services needed, quantities, prices, and delivery dates. Vendors acknowledge these POs to confirm details, then prepare or produce the goods or services as specified and submit an invoice.

For example, if you’re a Shopify store owner selling custom t-shirts, your vendor confirms they have enough blank tees and printing supplies to meet your order. Next, you’ll do quality checks to ensure the goods meet the agreed-upon standards.

Some businesses choose to streamline this further through vendor-managed inventory (VMI). In this model, the vendor takes responsibility for maintaining the retailer’s inventory levels based on shared data, which reduces the risk of stockouts and offers a leaner supply chain.

Payment and reconciliation

Once the job is done or the goods arrive, you’ll get an invoice. Check it against your original order and what actually showed up at your door. 

Now is the time to catch mistakes—like being overcharged for a product you never received or getting billed twice for the same service—before sending any money.

Next, process the payment as agreed—whether that’s paying it all upfront, in milestones, or only after everything is delivered. Then do a quick reconciliation to make sure your records and the vendor’s records match up. The last step is important to keep your business compliant during tax season or a year-end audit. 

Sale or usage of goods or services

You can either use the goods or services ordered from the vendor for your own business or sell them to individual consumers. If you choose to sell these goods or services to another individual or company, you effectively become a vendor yourself.

Supplier vs. vendor vs. contractor

While “vendor,” “supplier,” and “contractor” are often used interchangeably, they mean different things. Here’s how they compare.

Suppliers 

Suppliers provide raw materials, components, or products—typically in bulk quantities—to businesses that turn them into finished goods. They are key players at the start of the supply chain. For example, a steel manufacturer providing raw steel to an automotive company is a supplier. 

Vendors 

Vendors sell finished products or services directly to consumers or businesses that then sell to consumers. For example, companies that buy finished steel and sell it to consumers or use it to make other goods (e.g., automotive companies, construction firms) are vendors.

Contractors 

Contractors are independent workers or firms hired for projects or time periods. They provide specialized services rather than physical goods, like a plumber fixing a leak in your bakery. 

Your business model determines which to prioritize:

• Work with suppliers if you manufacture or build products. If your raw material costs rise or your quality declines, your whole business is at risk.
• Work with vendors if you’re in retail or distribution. Your success depends on having the right products on the shelves at the right time.
• Work with contractors if you’re service-based or project-driven. Your reputation relies on the specific expertise of the people you hire to get the job done.

Types of vendors

• Manufacturers
• Wholesalers or distributors
• Independent craftspeople
• Importers
• Dropshippers
• Retailers
• Service providers

Manufacturers

Manufacturers create products from raw materials. Sourcing from them often means lower prices, as there are no middlemen. This direct relationship allows for customization and better quality control. Manufacturers are ideal if you want to establish a remarkable product line with specific requirements.

Wholesalers or distributors

Wholesalers or distributors buy goods in bulk from manufacturers and resell them to retailers or other businesses. They offer a wide range of products, often at discounted prices due to bulk purchasing. 

Wholesale distributors simplify procurement and reduce costs by being a one-stop shop for various products. It makes sense to partner with them if you need diverse inventory without dealing with multiple vendors.

📚Read: 15 Best Small Business Wholesale Suppliers

Independent craftspeople

Independent craftspeople are artisans who create handmade or singular products. They generally produce goods in smaller quantities, focusing on quality and craftsmanship. Buying from them adds a unique touch to your inventory, appealing to customers wanting one-of-a-kind items. This vendor type is ideal if you value artisanal quality and want to offer exclusive products.

Importers

Importers bring products from international markets into your local market, handling the complexities of international shipping, customs, and regulations. They provide access to diverse products that might not be available locally, often at competitive prices. If you want to offer global products or capitalize on international trends, importers are your best bet.

Dropshippers

Dropshippers handle inventory and ship directly to customers on your behalf. With dropshipping, you don’t need to maintain stock, reducing overhead costs and storage needs. This model allows you to offer a wide range of products without the risk of unsold inventory. Dropshipping is ideal for ecommerce businesses looking to expand product offerings with minimal investment.

Retailers

Retailers sell products directly to the end consumer and provide ready-to-sell goods in smaller quantities. They offer convenience and quick turnaround times, making them a viable option if you need to replenish stock quickly. 

Service providers

Service providers offer non-tangible products like IT support, marketing services, or event planning. They are useful for outsourcing tasks or gaining specialized expertise. You can collaborate with them to enhance operations, improve efficiency, and access solutions not feasible to develop in-house.

Examples of vendors

• Pela
• Faire
• Manitobah
• Spocket
• Cowboy

Pela

Pela offers eco-friendly products like compostable phones and AirPod cases. It uses sustainable production methods so that Pela cases are less wasteful than conventional smartphone cases (cutting carbon emissions by 25% and water use by 35%). 

Pela supplies these green products to retailers, who sell them to environmentally conscious customers. This commitment to sustainability gives Pela dual benefits: It reduces environmental impact, and it attracts a loyal customer base.

Faire

Faire is a wholesaler and distributor that connects independent brands with small retailers through its integrated marketplace. 

The platform sources products from various manufacturers and offers them to more than 150,000 retailers worldwide, mostly in Europe. Faire provides perks like discounted shipping, dropshipping, and smart-matching technology to help retailers find the best suppliers. This makes inventory management easier and ensures small businesses have access to high-quality products.

Manitobah 

Manitobah creates handmade footwear and accessories that honor Indigenous traditions. The brand combines traditional techniques with modern materials to produce unique, high-quality items. These products are then sold to retailers and directly to customers who appreciate cultural heritage and fine craftsmanship.

Spocket

Spocket is a leading dropshipping vendor, sourcing products from suppliers in the US and Europe. The platform allows retailers to sell a variety of items, from clothing to tech accessories, without holding inventory. Additionally, it automates inventory management and order processing, saving business owners time and effort. 

With a focus on high-quality products and faster shipping times, Spocket boosts customer satisfaction and is a favorite among Shopify store owners.

Cowboy

Cowboy is a modern retailer selling smart e-bikes. It purchases top-notch e-bikes and accessories from manufacturers and enhances the online shopping experience with detailed product descriptions and high-quality visuals. 

Cowboy customers, who are typically tech-savvy and environmentally conscious, can also take test rides, building their trust in the brand. 

Tips for working with vendors

1. Establish vendor criteria
2. Create a mutually beneficial contract
3. Establish shared goals and aligned key performance indicators (KPIs)
4. Communicate promptly and clearly
5. Leverage technology where possible
6. Prioritize building stronger vendor partnerships

1. Establish vendor criteria

Working with quality vendors helps you nail the trifecta: excellent products, top-notch service, and competitive pricing. Setting clear criteria is how you can identify such partners and also avoid vendor fraud.

Key considerations for vendor criteria include:

• Experience. Choose vendors with a proven track record and established standards. Experienced vendors understand your needs and can handle business complexities, making them ideal partners.
• Financial health and reputation. Opt for vendors with a stable business model, low turnover rates, and positive reviews. Check their references to ensure they have a solid reputation and healthy client relationships.
• Product quality and fair pricing. Be cautious of vendors with suspiciously low prices—it’s likely an indicator of poor quality. Conduct thorough market research to get good value without compromising quality.

From a business perspective, you want long-term partnerships that provide mutual benefits. From a human perspective, reliable vendors who are pleasant to work with are crucial.

2. Create a mutually beneficial contract

Start by learning about your vendor’s business and what they need to thrive. This could mean offering flexible payment terms, marketing support, or help with logistics. Then, agree to policies that reduce your vendor’s risks, such as providing reasonable lead times for orders or guaranteeing minimum order quantities. 

Including advice and regular strategy meetings in the contract agreement can also strengthen your relationship. For instance, you can add clauses for feedback sessions to ensure ongoing communication and mutual growth. 

This collaborative approach adds value to vendor operations and shows you’re committed to a fair partnership where everyone thrives, not just you.

3. Establish shared goals and aligned key performance indicators (KPIs)

Setting shared goals and KPIs with your vendors ensures smooth supply chain management and creates a unified vision for success. This approach aligns your objectives with theirs, building a partnership where the vendor feels invested in your success.

Here are some tips for aligning your goals and KPIs:

1. Organize joint planning sessions. Hold regular strategic planning sessions with your vendors to discuss long-term objectives and how they align with each other’s business goals.
2. Develop customized KPIs. Set KPIs that are specific to your business needs and the vendor’s operational strengths. For example, if your goal is to enhance product innovation, include KPIs related to the number of new product ideas proposed by the vendor.
3. Ensure mutual accountability. Hold both parties accountable for meeting the agreed-upon goals and KPIs. This reinforces the partnership and motivates both sides to stay committed to achieving the desired outcomes.
4. Establish feedback loops. Create mechanisms for continuous feedback and improvement. This can include regular performance reviews and joint problem-solving sessions to quickly address any issues that arise.

4. Communicate promptly and clearly

From the start, you should let your vendors know what you want and expect from them. This will prevent misunderstandings and help build a strong, cooperative relationship.

Clearly outline expectations in your vendor contracts and POs so that both parties understand their responsibilities. 

For vendors, this includes payment terms, performance metrics like software uptime and support response times, delivery schedules, and product specs. For you, this means making timely payments, providing clear and accurate order details, and promptly communicating any changes or issues.

Additionally, schedule regular meetings, whether in person or online, to review progress, address issues, and discuss future plans. If things go wrong, be sure to take responsibility for any issues on your end. Whether it’s a delayed payment, a typo in an invoice, or a lost email, acknowledging your mistakes builds trust in the partnership.

5. Leverage technology where possible

Using technology to streamline real-time collaboration and transparency can greatly improve your vendor relationships. Many enterprise-level retailers use enterprise resource planning (ERP) vendors to integrate their core business processes, like finance, HR, and supply chain, into a single software suite.

The latest advancements here are around AI. New tools like SAP’s Joule and Coupa’s AI agents serve as digital assistants for procurement teams. They handle knowledge discovery and paper, completing tasks like:

• Summarizing long contracts
• Writing up RFPs
• Answering routine questions from vendors

AI is also helping with supplier discovery. Finding a new vendor used to take weeks of research. AI platforms now use massive datasets to recommend the best suppliers for your needs almost instantly. Coupa reported that supplier discovery is now up to 100% faster, thanks to its AI agents. 

Alongside AI, there are other tools to consider using:

• Vendor management systems (VMS). Implement a VMS to centralize all vendor-related information and processes and keep everyone on the same page. You can use it to track performance metrics, manage contracts, and facilitate communication.
• Multi-vendor ecommerce platform. If you’re operating a marketplace model where multiple sellers list products on your site, you’ll want a platform to handle the complexities of split payments, individual shipping rates, and vendor-specific dashboards.
• Collaborative platforms. Leverage platforms like Slack or Microsoft Teams to create dedicated channels for vendor communication. These platforms keep stakeholders aligned and enable quick resolution of concerns.
• Data sharing and analytics solutions. These are handy for sharing relevant data and analytics with your vendors. For instance, providing sales forecasts helps vendors plan their production schedules better, reducing lead times and preventing stockouts.

💡Pro Tip: AI is only as good as the info you give it. If your vendor data is messy or outdated, the AI’s advice will be too. Clean up your records first so the tech can do its job.

6. Prioritize building stronger vendor partnerships

To truly benefit from your vendor relationships, you need to go beyond mere transactions. 

Aim to understand your vendor’s business operations, challenges, and strengths. This deep connection enhances problem-solving and creates a responsive supply chain, ultimately fueling your business’s growth.

You can take the following steps to strengthen vendor partnerships:

1. Keep communication open. Maintain clear and transparent communication channels with your vendors to discuss performance and address issues. Schedule in-person or virtual check-ins, ideally monthly or quarterly.
2. Visit their sites. Periodic visits to your vendors’ facilities can give you insights into their operations. This hands-on approach will help you identify potential areas for collaboration or improvement.
3. Offer training and support. Provide training and support to your vendors, such as sharing best practices, introducing new technologies, or offering guidance on industry standards. 
4. Recognize and reward. Don’t forget to acknowledge your top-performing vendors. Positive reinforcement like formal awards, public recognition, or additional business opportunities can motivate them to perform better.