Vendors vs. Suppliers: Are You Buying Hot Dogs, or Building Relationships?
How to leverage the "hidden factory" as part of your winning team.
Suppliers and vendors. Yes, the words are to some degree synonymous, and it even may be a matter of semantics, but in my world there is a distinct difference between the two.
Many years ago, when I was dumber than I am today, I would constantly interchange the terms, until one day my supply chain sensei stopped me to explain the difference: “A vendor is a transactional provider like a hot-dog vendor on the street, while a supplier has a personal relationship with you.”
I am certain that your list of procurement sources are a combination of vendors and suppliers, but if your list is heavily weighted towards vendors, then you are likely having supply chain issues. So let us explore the qualities that distinguish the two.
Since a vendor relationship is transactional, the item you purchase is likely either a commodity or something with little or no Intellectual property. This then motivates procurement personnel to pursue a low-cost-country (LCC) sourcing strategy where they typically are only concerned about the actual component cost and often ignore the cost of logistics and even quality.
Make no mistake, there are a lot of companies that follow this model, as can be witnessed through the backlog of container ships waiting to be unloaded in many ports. To work with a vendor is “easy,” as expressed by a member of the merchandising department at a furniture retailer/manufacturer where I led continuous improvement efforts.
That person stated, “Richard, it is easier to hop on a plane to China and just go shopping. Once we find something that we feel will appeal to our local consumer, we just purchase a container or two of the stuff and have it shipped back to North America… Much easier than having to work with you and your team going through several design reviews, creating quality expectations and providing design details for cover cutting, sewing and final upholstery.”
The sad part is that these folks will just move from one global geographic region to another depending on price which they think is providing value. We are currently seeing the migration of production from China to Vietnam, India and Africa, where the standard of living is much cheaper.
Typically, purchasers working with vendors feel those items are widely available and most likely from multiple sources, so they ignore the need to create a true supplier relationship. This is why you see many companies suffering directly from chip shortages while others can still sustain production.