In the retail environment, understanding the inner workings of a supply chain becomes extremely important. In saying that, it’s very easy to be confused about the differences between suppliers, distributors and wholesalers. More often than not, people tend to use these words interchangeably when really, all three have very separate and important roles in the supply chain.
Suppliers are at the heart of the whole operation and are crucial to ensuring distributors, wholesalers and retailers have access to the necessary goods. Some examples of suppliers include manufacturers, merchants, processors, packagers and dealers.
They are the core source of goods and services and work very closely with distributors. Suppliers don’t tend to have the resources to sell raw goods or products directly to customers which is why involvement from distributors and wholesalers is crucial to meeting consumer demand.
Distributors tend to have direct relationships with the manufacturers of a given product and can, at times, represent the manufacturers. Distributors are responsible for liaising with wholesalers or even suppliers and offering them good pricing based on the quantities needed.
As a result, distributors do exactly what the name suggests – distribute. In general, they do not tend to manufacture goods, nor do they sell goods directly to customers.
Distributors have the ability to offer wholesalers lower pricing by purchasing the goods with a buying agreement. The buying agreement of a distributor carries conditions that either limit how many of the product they can sell or delegates them a specific geographic region they are limited to supplying. This is also the distributor’s source of income as they earn a percentage based on the number of units they sell.
Wholesalers purchase goods directly from distributors, usually in large quantities. This allows them to purchase a large number of goods at much cheaper prices than they would at the retail level.
Like the distributor, wholesalers also buy in bulk and sell in bulk and almost never have direct contact with customers. They tend to solely provide products to retailers.
Wholesalers and distributors do operate very similarly which is why the two are easily confused. To put it simply, a wholesaler sources products from the distributor and is usually the final provider for retailers.
So why not save money and cut out the middleman?
The resources and channels needed to do so are very expensive and very few companies alone have the means to cover everything. Retailers in general are not equipped to deal directly with suppliers and vice versa. By involving suppliers, distributors, wholesalers and retailers, each company’s position in the supply chain can be done thoroughly through experience and industry know-how and therefore lower the risks for error.