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Planning to enter the wholesale business but don’t know where to begin?
Why not start by learning more about the industry and its mechanisms from the point of view of an industry expert?
This guide covers all the wholesale industry’s basics and its functions, niches, benefits, and challenges to help you make an informed decision.
Let’s dive in!
What is Wholesale?
Wholesale involves the purchase of goods from manufacturers and the selling of goods to retailers by wholesalers. Wholesalers act as intermediaries and are also known as distributors, resellers, or dealers.
Wholesalers buy and sell in bulk quantities, due to which they may also be involved in the transport, storage, finance, and other aspects of the supply chain.
Depending on the distribution channel, consumption pattern, and product, a wholesaler may undertake many different functions and roles.
Types of Wholesalers
There are many different types of wholesalers operating in various industries, which makes categorizing them quite difficult. Here are three main categories they are divided into and their role in the industry they operate in.
Merchant Wholesalers
Merchant wholesalers are largely involved in the traditional supply chain model. They buy bulk quantities of products and sell them to retailers.
Merchant wholesalers have an in-depth knowledge of the products they buy and sell and the market they operate in.
Agents and Brokers
Agents and brokers act as sales representatives that purchase and sell goods. However, they are not responsible for the goods. They may perform many of the duties of the wholesaler, but their main purpose is to get the best deals for their clients.
Sales and Distribution
Unlike typical wholesalers, sales and distribution teams work with manufacturers. They are responsible for creating wholesale deals and selling products by representing manufacturers.
What are the Functions of a Wholesaler?
Here are some of the most common and crucial functions of a wholesaler:
Mediation and Communication
Wholesaler suppliers are the sole point of contact and mediators between manufacturers and retailers. They facilitate communication of products, consumer preferences, production trends, market demand, and trends, etc., between manufacturers and retailers.
Assembly and Warehousing
Wholesalers are responsible for assembling and stocking products from manufacturers. Depending on the type of supplier, industry, and offerings, a wholesaler may assemble, stock, and store goods from one or many manufacturers.
Transportation
One of the most important functions of a wholesaler involves arranging for the transport of goods from the manufacturer to their warehouses and then dispensing products to different retailers in various places.
Financing Services
Wholesalers often also provide financial assistance to retailers, such as selling goods on credit. They may also support manufacturers by paying cash in advance or purchasing order quantities in bulk and paying for them in cash.
Risk Bearing
The wholesale supplier bears any risk of goods damage after purchase from manufacturers until their sale to retailers.
Grading, Packing, and Packaging
The wholesale supplier is also responsible for grading, packing, and packaging the products. This ensures the products are suitable for sale to smaller retailers.
Importance of the Wholesale Industry
The wholesale industry is crucial to the supply chain/ distribution cycle. Not only do they facilitate the distribution of goods from manufacturers to retailers but also help provide financial assistance, information, and insight into market demands and trends.
Benefits to Manufacturers
Wholesalers allow manufacturers to expand their presence.
Manufacturers lack the knowledge and influence over the market that wholesalers can provide. This helps manufacturers use wholesalers’ knowledge and resources to reach new markets and promote their products.
Wholesalers can also use their network and direct connection with retailers to provide manufacturers insight into their products and their reception.
What’s more, some wholesalers also buy electronics in bulk to resell. This helps manufacturers eliminate overstock and allows retailers to source refurbished inventories at a lower cost.
Benefits to Retailers
Wholesalers help retailers run their businesses.
Manufacturers typically only deal with buyers willing to buy large quantities of products. Retailers lack the funds and capacity to buy and store large quantities of goods. That’s where wholesalers help retailers.
Wholesalers have the funds to finance bulk orders and the capacity to store and transport many goods. Often the wholesale supplier may also provide financial credit facilities to retailers.
Retailers also need to buy and sell various products from different brands. Sourcing these is difficult for retailers who operate on a smaller scale. Wholesalers help assemble bulk orders from different brands to provide a catalog of goods to retailers.
Wholesale Pricing
Unlike retailers, wholesalers buy products in bulk from the manufacturers. This helps them acquire products for a discounted price. This is referred to as wholesale pricing.
Wholesalers can further also sell these products for a markup to the retailers. Although this markup is lower than the retail price of the products, it earns the wholesalers a sizable profit.
Major Challenges Facing the Wholesale Industry
Disintermediation refers to the removal or dissolution of wholesalers from the supply chain.
It happens when manufacturers or retailers overtake one or more of the responsibilities of the wholesaler.
- Transportation/ Shipping Costs
Providing goods for competitive prices in a market where fuel costs keep rising is another challenge for wholesalers.
New supply chain technologies have grown in the past few years, from radio frequency identification tags (RFIDs) and inventory management software to automation.
Adopting these technologies into operations resolves many challenges for wholesale suppliers. However, the task and costs of adapting are a new challenge for traditional wholesale suppliers.
The growth of e-commerce and new technologies are also spurring a change in the demands of retailer clients. These include demands for better customer service, expert assistance, value-added offerings, etc.
With the increasing need for faster delivery, there is pressure on wholesalers to increase the speed of their operations. This means warehouse management must change to become more efficient and organized.
- Omni channel Sales Management
Omni channels have replaced traditional sales channels. Wholesalers must now reach their clients via multiple sales channels to keep up with the competition in the industry.
In Conclusion
Running a wholesale business is quite an ordeal when you don’t know the ABCs of the industry. We hope this guide has helped the basics for you.
Good luck with your upcoming business venture!
