Table of Contents
More Distribution Content
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Table of Contents
More Distribution Content
Get the latest e-commerce industry news, best practices, and product updates!
Wholesale distribution involves buying goods in bulk from the manufacturers and distributing them to retailers. Wholesale distributors ensure that stores have enough products to sell, allowing manufacturers to concentrate on developing innovative products.
What Is Wholesale Distribution?
Wholesale distribution refers to purchasing products in bulk and reselling them to the retailer who ultimately sells to consumers. The bulk purchase is directly from the manufacturers. Moreover, the firm that purchases in bulk must ensure that irrespective of the merchandise being purchased, the consumer demand will be sufficiently high to create an equivalent high number of sales.
Although wholesale distribution can prove profitable, it also demands more space, investment, and risk. Certain states will need wholesale licences, and certain goods may require additional licences at a federal level. Usually, the wholesale distribution business specializes in particular product categories or industries. Occasionally, they establish long-term relationships with the manufacturers. This helps the company fulfill customers’ expectations and stand out from competitors.
Wholesalers work as intermediaries between the product manufacturers and vendors or other businesses selling directly to consumers. They profit by purchasing bulk products at a discounted rate and reselling them in smaller amounts at a higher price to retailers.
The distribution wholesale allows manufacturers to focus on designing, developing, and promoting their products without capitalising on widespread sales efforts or handling relationships with many small retailers. Typically, wholesalers stock an extensive range of products. This streamlines tasks for retailers because they can acquire a wide assortment of goods without having to work with various suppliers.
Certain industries may have multiple levels of distribution. The larger wholesale distributors may supply goods to regional/smaller/specialist distributors. A few wholesalers can work as suppliers of raw materials to the manufacturers.
After understanding what is wholesale distribution, let’s know the meaning of a wholesale distributor.
Who Is A Wholesale Distributor?
A wholesale distributor is a company or individual who purchases products in bulk capacity directly from the manufacturer and reallocates them to retailers or other businesses. Commonly, wholesale distributors will provide a catalogue featuring a broad range of products accompanied by customer service.
Three key pillars of the supply chain are -the manufacturer, wholesale distributor, and retailers. So, wholesale distributors are vital in driving the supply chain. Without them, the supply chain’s buying and selling processes are incomplete.
Certain marketers have invested a lot of capital in manufacturing goods, but still, their products are not acknowledged in the market. This is where the role of wholesale distributors proves to be significant. Their experience is necessary to make goods available to all consumers and retailers.
Cash and Carry
A cash and carry wholesaler owns a finite line of fast-moving goods; they sell to small retailers in place of cash. But in most cases, they don’t deliver. The cash and carry wholesalers are related to a distinct section of the wholesale sector.
Presently, cash and carry wholesaling activity thrives in the wholesale industry. It can be observed as an arbitrage distribution channel strategy that handles the synchronised procurement and sale of the same assets in various markets. Generally, these wholesalers work from massive warehouses, primarily not in town. This aspect allows them to maintain low prices of goods.
How Does Wholesale Distribution Work?
Wholesale distributors oversee processes like goods’ acquisition, storage, and preparing them for sale in smaller amounts to customers.
The parameters indicating the success of a wholesale distribution are a proper comprehension of market trends, customer needs, price structures, developing decent relationships with business partners, and maximising operational efficiency.
To let the wholesale distribution process work flawlessly, the wholesale distributors should build powerful upstream relationships with the manufacturers or suppliers of the goods they buy in bulk. Moreover, they should develop loyal relationships with their downstream customers. Here, the downstream customers can be retailers or other businesses like contractors, hotels, hospitals, etc.
Sometimes, wholesale distribution may include dropshipping providers to serve the on-site or e-commerce retailers. Especially in a dropshipping configuration, the retailer doesn’t pile up the product it intends to sell to customers. Alternatively, the retailer takes payment and passes the order to the corresponding distributor. Finally, the distributor directly ships the product to the end customer.
Who Would Use Wholesale Distributors?
In most cases, those retailers who want to buy products in bulk to accumulate the shelves of their stores will use wholesale distributors. To maintain stock of the products, retailers intend to buy them in bulk quantities from these distributors. They may purchase for distribution warehouse for an online store or an on-site ship. The role of wholesale distributors has extended in this digital era.
Certain wholesalers attempt to sell to customers directly. This can be a practical approach when wholesalers can sell their products at wholesale and still incur profit. Also, with this approach, customers benefit from the additional savings while directly purchasing from the wholesaler. To maintain profit, distributors can slightly increase the prices.
In addition to retailers, dropshippers also use wholesale distributors. For years, dropshipping has gained tremendous popularity. It is an excellent approach to use the low prices presented by wholesalers. Usually, dropshippers operate online, and similar to retailers, they would partner with wholesalers to gain access to the bulk deals on the products.
Retailers need to buy their products, but dropshippers don’t. They don’t have inventory on hand for sale. Whenever a customer places an order, the dropshipper sends the order to the specific wholesale distributor. Subsequently, the distributor processes the order and is accountable for shipment to the customer.
To sell online, a retailer must locate relevant wholesale distributors who can provide them with the products to sell. There are plenty of wholesale distributors online to choose from when it comes to making money online.
Wholesale distribution channels
The path that a product or service follows from manufacturing to the end customers defines a distribution channel. The most widespread distribution channels are a manufacturer, a retailer, a wholesaler, and the end consumer.
Distribution channels also indicate how money flows from the buyers to the initial point of sale. Several wholesale businesses use one or multiple strategies to market their products. Decisions about distribution channels depend on the product type and demand.
The wholesale distribution industry is classified into four major segments. They are healthcare, drinks and food, industrial, and high-tech.
Here are the major types of wholesale distribution channels.
Being the most common wholesale distribution channel, retail shops can be single shops or national retailers. Certain wholesalers sell to department stores too.
The wholesalers buy bulk quantities of products from other wholesale distributors and resell them via other channels.
Numerous businesses are adopting e-commerce as their channel of distribution. This channel offers items to customers through the company website.
Wholesale Distribution Benefits
Wholesale distribution benefits all businesses connected in the supply chain. The key benefits are:
Manufacturers who partner with wholesale distributors can invest less capital to enlarge their market. The reason is the wholesaler looks after distributing the product to remote retailers. Manufacturers need not hire, develop or maintain expensive teams of skilled salespeople to sell directly to customers.
Reduced cost of business
The wholesale distribution not only streamlines operations for retailers and manufacturers but also decreases their operating costs. Those retailers that purchase from wholesalers might pay lower prices than when buying products in small quantities directly from the manufacturers.
Manufacturers can collaborate with a comparatively small number of distributors to accomplish large orders to save time and effort. Retailers can obtain their supplies from only a few distributors rather than dealing with several individual manufacturers. Therefore, order configuration streamlines and shipping costs are also reduced.
Large storage capacity
Wholesalers usually own an expansive extensive warehouse capacity for neat inventory storage. This large storage capacity frees up manufacturers and retailers from the challenges and expense of upholding huge stocks of products.
Supply chain stability and risk mitigation
Purchasing and maintaining products in bulk allow wholesalers to ensure a stable supply of products. Also, it decreases the threat of shortages for other wholesale distribution companies in the supply chain. The supply chain stability benefits a huge consumer base with a consistent supply of goods.
Wholesale Distribution Examples
Let’s understand how wholesale distribution is helpful in the sales force.
Most companies will adopt some type of sales team. However, wholesale distribution in the Sales Force neither uses direct sales channels nor intermediaries. The wholesaler’s sales efforts are handled by commissioned/salaried individuals who are tasked with selling your inventory. One of the best examples of a wholesale distribution method is auto dealerships.
Imagine a wholesaler purchases products in bulk at discount prices from a manufacturer and sells them to retailers. Retailers, in turn, resell them to consumers. Since wholesalers attain enough profit in bulk, the retailers can procure products from wholesalers at a reduced price compared to that bought directly from the manufacturers. Hence, they benefit from more profit.
For example, a retailer pays $15 each for the 50 shirts if it anticipates selling online monthly if bought directly from the manufacturer. But if it sells the shirts at $20 each, it will gain $5 profit per shirt. A wholesaler may obtain the same shirts from the manufacturer at $9 because it purchases 500,000 shirts a month. Suppose a wholesaler sells the shirts to the retailer for $14, making a $6 profit on each shirt, consequently, the retailer also earns a profit.
Wholesale Distribution Vs. Retail Distribution
Two common distribution approaches are wholesale distribution and retail distribution. Other distribution approaches are
- Manufacturers directly distribute their goods to customers.
- Manufacturers run agent networks or distributors that directly supply goods to retailers.
- But let’s go through the two most common distribution approaches,
Wholesale Distribution Strategy
i. Keep a check on inventory
Keep Inventory Under control & Automate
There are many ways available to fulfill the demands of the consumer best. However, one of the most significant ones is to sustain sufficient stocks in your inventory to meet the customers’ demands.
Occasionally, wholesalers may require enormous stock to timely fulfill customers’ orders. But the excess supply is also not recommended. In addition to keeping the inventory under control, wholesalers must aim to automate the process.
ii. Staff training
One of the factors determining the success of a wholesale distribution business is trained staff. The team should be trained to manage the inventories and meet customer’s demands competently.
iii. Order Fulfillment
Customer retention hugely relies on order fulfillment time. A wholesaler should have its inventory occupied with stocks to fulfil customers’ demands. Typically, retailers deliver their orders within 24 hours. Consequently, customers stay satisfied, and it leads to customer retention.
iv. No compromise on price
Plenty of businesses provides discounts to their customers to entice and engage them with their brand. However, to compete in the market, a wholesale distribution business should never compromise on the price. Wholesalers may face huge risks if they lower the cost of goods against their competitors. Occasionally, it can put them into huge debts.
v. Lasting customer relationship
The growth of a business largely relies on developing and maintaining a long-lasting relationship with the customers. This is because customers are inevitable components of any business. Even in this digitised world, the mouth publicity from your satisfied customer can build you a robust customer base. If customers are happy with a particular wholesale distribution service, they will recommend their service to others and ultimately facilitate excellent business growth.
To reach a wide customer base, wholesale distribution buys goods in bulk and conveys them to end customers via retailers. They indirectly fulfill customers’ demands by analysing market trends and price structures. Their ability to maintain a large capacity ensures a stable supply of products. Hence, plenty of customers indirectly benefit from the consistent supply of goods.
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The steps to start a wholesale distribution business
- Creating a business plan
- Product selection
- Establishing the warehouse
- Maintaining decent relationships with suppliers
- Extending connection
- Making a credit policy
- Preparing documents for
- Recognizing your dealer
- Controlling your inventory
- Ordering online
The 4 types of distribution are explained here,
i. Direct channel –In this channel, the product suppliers or the manufacturer supplies goods directly to the customers.
ii. Indirect channel -It first markets goods to retailers, who then sell them to consumers.
The major roles of wholesalers in distribution process are,
a) Bulk purchasing
Firstly, wholesalers buy products in massive quantities from manufacturers.
Subsequently, the products are sold to retailers, organisations, and government offices in small amounts per their requirements.
Wholesalers also need to arrange for product storage effectively. In the absence of proper storage, the products would be damaged. Until the purchased goods get sold to retailers, wholesalers look after properly storing them in the warehouse.
Apart from these, their other roles are
- Ensuring quick delivery
- Order collection
- Risk bearing
- Dealing with an expert advisor
- Familiarity with Market information
- Ensuring high distribution efficiency
As the name implies, the full-service wholesalers provide the full service to the end retailers.
Primarily, they operate in the retail market and ultimately sell products to a reseller. They are the second most common kind of wholesalers in the market.
They are responsible for everything except the servicing and maintenance of the product. They deal with financing, sales, and deliveries.
Example – Company ‘X’ intends to extend its operations in region-A but doesn’t have a sales office in this region. Hence, it hires a distributor in region-A. The responsibility of this distributor includes order picking, delivery, promotions, training sales associates, and all other necessary tasks for Company ‘X’ success as a distributor. So, he/she is termed as a full-service wholesaler.
A wholesale distribution channel denotes how goods flow over the supply chain and reach the end customers. It describes the wholesale distribution companies engaged in the movement of products from their suppliers/manufacturers to retailers. Also, it incorporates wholesale distributors that purchase the goods, stores them, and sell and ship them to on-site and online retail outlets.