How is Wholesaling Structured?

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By: Site Engineer, Staff

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Wholesalers are merchant middlemen that take title to the goods they handle.

They operate between producers or manufacturers and retailers, other wholesalers, merchants and or industrial institutions and commercial users. Wholesalers do not sell in significant amounts to the ultimate consumers.

They, however, sell to those who will resell the goods or use them to produce other goods.

The Functions of Wholesalers

Wholesalers are pure marketing institutions that perform all marketing functions of:

1. Buying

Wholesalers have specially trained and expert buyers that specialize in the products they handle. These buyers have skills in buying the products they specialize in. They know all the sources of supply for such products. They know the actual time to buy the items and have expert knowledge about the market conditions for these product items.

2. Selling

Wholesalers employ travelers and salesmen to scout around for customers. They have prepared catalogs and price lists which are made available to their customers. They advertise in journals and trade magazines. They also exhibit goods from various manufacturers in their warehouses. This provides opportunities for retailers to inspect and evaluate the goods before they buy them.

3. Product Development and Standardization

Wholesalers contribute to completing the production process of some items. For example, wholesalers store spirits and liquor in their specialized warehouses for them to mature. They also buy some items in bulk like flour and grains and re-bag them into smaller sizes which they sell to retailers.

4. Storage

Wholesalers have huge warehouses where they stock many manufacturers’ products. In fact, the warehouses are the main assets. They buy in large bulks to stock, thus providing the manufacturers with storage facilities. This is because the manufacturers will not have to stock the items produced themselves.

5. Financing

Wholesalers buy in large bulks and pay in time to provide the manufacturers with funds to continue their productions. Wholesalers also grant credit to retailers. This affords the retailers the opportunity of selling their items before having to pay for them.

6. Information Processing

Wholesalers operate between manufacturers and retailers. They obtain useful information about the market from the retailers and also from their own travelers and salesmen. They feed these information back to the manufacturers.

The retailers also use them as their sources of information concerning the operations of the various manufacturers and their products. They maintain samples of the different manufacturers’ products in their warehouses for retailers to inspect. They prepare catalogs, some containing pictures of samples, and price lists which they distribute to their customers.

7. Transportation

Wholesalers usually maintain large fleets of trucks. They pick up their own goods from the manufacturers and convey them to their warehouses. They also deliver goods to retailers in their own trucks.

8. Risk Bearing

Wholesalers are merchant middlemen. They take little to the goods they handle because they buy and own them. They, therefore, bear all the risks of losses or profits, price changes, spoilage and pilferage, fashion and taste changes, and the other unforeseen risks. They are responsible for insurance against these risks.

Relationship Between Wholesalers and Manufacturers

Manufacturers have some special advantages when they use wholesalers to distribute their goods.

  1. While manufacturers often control the promotion of their products and influence their pricing, they in most cases will leave transportation for wholesalers to handle for them. This is because wholesalers have fleets of trucks to handle this activity.
  2. Wholesalers are closer to retailers than producers so the producers use them as their sources of information about retailers and the market.
  3. The wholesalers serve as the financiers of manufacturers. They buy in large quantities and pay early. This allows the producers to concentrate all their efforts on production and to develop the right type of products for the market.
  4. Wholesalers sometimes buy semi-finished products from manufacturers which they process further and package for the market.
  5. They serve as manufacturers warehouses, thus providing the producers with space for further production. This helps in reducing the fluctuation in the production process. Production scheduling can then be better planned.

Relationship Between Wholesalers and Retailers

  1. They provide many assortments of the same product item for retailers to pick and choose. They also help retailers to select their inventories from just one store instead of going from store to store.
  2. Wholesalers buy from many manufacturers in large quantities and concentrate them in one place for retailers to inspect before buying. They provide a place and time utilities for retailers.
  3. Wholesalers enable retailers to buy in smaller units. They break the bulk of products into smaller amounts that retailers can afford.
  4. Wholesalers finance retailers by allowing them a long period before paying for the goods they buy from them. This allows retailers to operate with a less financial burden.
  5. Wholesalers buy in large quantities and deliver to retailers in smaller lots using their own transportation, and material handling equipment. By these activities, the wholesalers are able to provide the retailers with fast and efficient services even when demands fluctuate.

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