18.5 Wholesaling

Wholesalers play a crucial role in the distribution channel, bridging the gap between manufacturers and retailers. They purchase goods in bulk, provide value-added services like warehousing and market intelligence, and impact product pricing through their markup.

Wholesaling strategies create value in different ways. Full-service wholesalers offer comprehensive support, limited-service wholesalers focus on efficiency, and manufacturer's agents leverage industry expertise. These approaches optimize the supply chain and streamline product flow to end consumers.

Wholesaling in the Distribution Channel

Role of wholesalers in distribution

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• Serve as intermediaries between manufacturers and retailers in the distribution channel
  • Purchase goods in bulk from manufacturers and sell smaller quantities to retailers
  • Enable manufacturers to focus on production and retailers to focus on selling to end consumers
• Provide several value-added services
  • Offer warehousing and storage of products (inventory management)
  • Break bulk into smaller quantities for retailers (breaking bulk)
  • Provide credit and financing options to retailers (financial services)
  • Offer market information and advice to both manufacturers and retailers (market intelligence)
• Impact product pricing through their markup on goods
  • Markup covers the costs of their value-added services and generates profit
  • Markup is added to the manufacturer's price, influencing the final retail price (price setting)

Types of wholesaling services

• Full-service wholesalers offer a wide range of services to both manufacturers and retailers
  • Maintain extensive inventories, provide credit, and offer marketing support
  • Examples include broadline foodservice distributors (Sysco) and pharmaceutical wholesalers (McKesson)
• Limited-service wholesalers offer fewer services compared to full-service wholesalers
  • May specialize in specific product lines or geographic areas
  • Examples include rack jobbers (magazine distributors) and drop shippers (online retailers)
• Manufacturer's agents represent manufacturers in selling to wholesalers or retailers
  • Do not take title to the goods and typically work on a commission basis
  • Often specialize in particular product lines and have strong industry relationships
  • Examples include independent sales representatives (consumer electronics) and brokers (food products)

Value creation through wholesaling strategies

• Full-service wholesaling creates value through comprehensive support
  • Retailers benefit from a wide product selection, financing options, and marketing assistance
  • Manufacturers gain access to a broad network of retailers and can focus on production
  • Example: Full-service wholesalers like Grainger provide extensive support to industrial and commercial customers
• Limited-service wholesaling creates value through specialization and efficiency
  • Retailers can access specific product lines or take advantage of lower costs due to reduced services
  • Manufacturers can target niche markets or reduce their distribution costs
  • Example: Cash-and-carry wholesalers like Costco Business Centers cater to small businesses with limited services
• Manufacturer's agents create value by leveraging industry expertise and relationships
  • Retailers gain access to specialized products and market insights
  • Manufacturers benefit from the agents' industry knowledge and sales capabilities without the need for an in-house sales force
  • Example: Manufacturer's agents in the fashion industry connect designers with retailers and provide market trends

The Role of Wholesaling in the Supply Chain

Role of wholesalers in distribution

• Serve as a key link between manufacturers and retailers in the supply chain
  • Help streamline the flow of goods from production to end consumers
  • Reduce the number of transactions and relationships manufacturers and retailers need to manage
• Help stabilize prices in the market
  • Absorb short-term fluctuations in supply and demand by adjusting inventory levels
  • Prevent drastic price changes for retailers and consumers (price stabilization)

Supply Chain Optimization

• Wholesalers play a crucial role in supply chain management
  • Coordinate logistics to ensure efficient movement of goods
  • Implement distribution strategies to optimize product flow
• Leverage economies of scale to reduce costs
  • Consolidate shipments from multiple manufacturers
  • Distribute to numerous retailers more efficiently than individual manufacturers could
• Provide value-added services to enhance supply chain performance
  • Offer product customization, packaging, and labeling services
  • Conduct quality control checks before products reach retailers