Distributors purchase large quantities of goods from the producer and supply these to individual retailers, thereby eliminating the need for the manufacturer to contact a large number of retailers one by one. Such a relationship provides many benefits for all parties involved. Manufacturers that work with distributors must use far fewer warehouses, trucks and personnel, because distributors take up some of these functions required to make the product available at the final point of purchase.
A manufacturer might, for example, use one exclusive distributor in each of the 50 states and need only three major warehouses, located on the East Coast, the West Coast and the Midwest to supply these 50 locations. Had it used no distributors at all, it would have needed 50 warehouses instead of three. The funds saved by relying on distributors for critical functions can be invested into such things as research and development, advertising and other functions. Because the distributors know the local market and are closer to consumers, they are often able to guess what customers might need and advise manufacturers accordingly.
The functions of distributors go beyond those that are fulfilled for consumers. Therefore, they need distributors to help them in the process of getting the product to the final customers. In addition, since consumers are usually well aware of the potential benefits provided to them by distributors see above , they will choose a distributor that is able to meet their needs.
This is why choosing the right distributor in an overseas market is crucial for the manufacturer, as the distributor is like the gateway to the market. Firstly, distributors fulfil a role that may be quite obvious: they buy and hold stocks for the manufacturer. In most cases, distributors actually buy the goods from the manufacturer, which frees up working capital for the manufacturer.
End-users almost always buy from several manufacturers. In addition, distributors can share credit risk. Although the manufacturer will offer credit to the distributor, this is less risky than offering credit to the hundreds of customers the distributor deals with, especially since the manufacturer will only have limited access to information about the creditworthiness of end-users.
Next to credit risk, distributors also share selling risk. The distributors have a stake in selling the products, since they have made a commitment by buying the products from the manufacturer. This means that they will be motivated to sell the products. In the event that sales are disappointing, the loss will be shared between the manufacturer and the distributor. George N. Root III began writing professionally in By George N.
Root III. Retail Outlets The value of a distributor is in its network of retail outlets. Customer Service Part of being a sales organization is offering customer service and support. Custom Configuration Manufacturers often use distributors to do custom configurations for retail outlets and end users. Because distributors represent multiple products and companies, they can bundle them together.
As a result, the buying process is streamlined, and costs can decrease. Distributors also have the benefit of reducing inventory and service burdens for both the manufacturer and the user. They provide aftermarket services, cost reduction and process optimization strategies, as well as inventory management.
Distributors create value by providing total solutions for their customers. The wholesale trade sector comprises establishments engaged in wholesaling merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. To put it into easier to understand language, a wholesaler sells their product in bulk quantities to retailers, allowing the retailer to take advantage of a lower price than if they were to buy single items.
The wholesaler will typically buy goods directly from the manufacturer but could also buy from a reseller. In either case, the wholesaler gets large discounts for buying large quantities of goods. The wholesaler is rarely involved in the actual manufacturing of a product, focusing instead on distribution. Wholesale is buying on a large scale. The wholesaler can specialize in selling a wide range of different products to other businesses, governmental agencies, or hospitals.
Then these institutions use those products for their own operations. When companies buy products wholesale, it is important to track all these products for the success of your business.
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