In: Operations Management
Provide a real-world example of a wholesaler, a distributor, and a retailer. Discuss the differences among them.
Answer-
Walmart discount stores is an example of a retailer. A person who
sells Tupperware home products is an example of a distributor. The
e-commerce platform Alibaba is an example of wholesalers.
A wholesaler is a merchant or a firm that purchases and stores a
large number of products from manufacturers and vendors before
reselling them to retailers, commercial users and other merchants.
A distributor, on the other hand, is an entity that acts as a
mediator between a manufacturer and another entity within the
supply chain. A retailer, also called a merchant, is a person or an
entity that purchases and sells products directly to end consumers
by the use of different types of distribution channels.
Despite working closely in the supply chain, there is a major
difference between a wholesaler, a distributor, and a
retailer.
Role in the Supply Chain: Mainly responsible for distributing
products to different parties or entities, distributors act as a
major link in the supply chain. Wholesalers, on the other hand,
purchase a huge quantity of products directly from the distributor.
Between the three, retailers are at the lowest point in the supply
chain as they typically buy products from wholesalers.
Degree of Involvement: Unlike wholesalers and retailers,
distributors typically establish a business relationship with the
product manufacturer by securing a contract, which states exclusive
agreements that can give the distributor the full power to
disseminate goods within a specific territory. Some contracts also
clearly identify and limit the degree of involvement of every
participant involved in the contract.
Distribution Channel: A distribution channel aims to deliver
products from manufacturers to end consumers by the use of
different intermediaries, also known as mediators or links.
Distributors, wholesalers, and retailers act as intermediaries, but
they function in the different levels of the distribution channel.
A retailer functions in a one-level channel, which contains only
one intermediary. In this channel, the merchandise is transferred
from the manufacturer to the retailer, who sells the product to end
consumers. Meanwhile, a wholesaler is present in both two-level and
three-level channels. As the name implies, a two-level channel is
made up of two intermediaries - the wholesaler and the retailer.
The three-level channel, on the other hand, is a channel type where
the distributor, the wholesaler, and the retailer work together to
deliver products to end consumers.
Business Model: Both distributors and wholesalers typically use the
"business-to-business" (B2B or B to B) model, which pertains to a
type of transaction made between two or more companies. Meanwhile,
retailers are "business-to-consumer" (B2C) companies, which simply
means that they sell products directly to consumers.
Major Work: As a B2C company, retailers are mainly responsible for
selling products to end consumers. Wholesalers, by contrast, may or
may not sell products directly to end consumers. Aside from their
role in disseminating products, they also need to invest in storage
since they buy a lot of products from distributors. In the
marketing industry, storing products is more commonly known as
warehousing.
Between the three, distributors play the most complex role since
they need to increase the visibility and sales of the products by
running promotional campaigns. Distributors also need to allocate a
budget for transporting products to either wholesalers or
retailers. Even though they can transfer products to these two
intermediaries, they are never allowed to sell products to end
consumers.