Defining Wholesale: A Closer Look at This Key Part of the Supply Chain
Wholesaling is a vital step in the supply chain that involves buying goods from suppliers or manufacturers in bulk and selling them on to retailers, commercial businesses, or external distributors. While the average consumer may not interact directly with wholesalers, they play an indispensable role in getting products to market efficiently. Understanding what wholesalers do provides helpful insight into how supply chains operate.
Sourcing and Procuring Inventory
Wholesalers serve as intermediaries between suppliers or producers and businesses selling products and services. They take ownership of inventory, purchasing substantial quantities of goods from manufacturers at discounted bulk or wholesale rates. This inventory is then sold on to retailers, commercial buyers, or distributors at a markup from the wholesale price. Wholesalers enable suppliers to sell and ship products in high volumes without needing to handle distribution logistics.
Storing and Managing Stock
A key function of wholesalers is warehousing and managing inventory until it can be resold and delivered to buyers. Wholesalers have expansive facilities and advanced logistics capabilities to store large quantities of inventory for distribution. This allows retailers and other buyers to order stock on-demand rather than carrying high levels of inventory onsite. Wholesalers handle inbound and outbound shipping, tracking, and inventory management.
Providing Economies of Scale
Wholesalers create major cost efficiencies by consolidating orders and buying at scale. The bulk purchasing power allows them to negotiate lower wholesale prices from suppliers and manufacturers. Those savings are passed along as wholesalers sell products on to buyers at higher than wholesale but lower than retail rates. This creates margin for wholesalers while still offering attractive discounts for buyers versus direct from suppliers.
Serving as Channel Experts
Wholesalers develop specialized expertise around the industries and supply channels they serve. They providevaluable category and inventory management insight to both suppliers and buyers. Their focus and knowledge of logistics, regulations, pricing, and trends helps more goods flow efficiently through the supply chain. Wholesalers essentially act as channel captains.
Facilitating Customer Choice
Wholesalers enable wider customer choice and availability of products. Rather than manufacturers having to sell small batches to many business buyers, wholesalers allow them to sell large volumes into a consolidated distribution network. This provides retailers and businesses one-stop access to vast inventories across many suppliers and categories. Wholesalers become a single source of supply.
Providing Delivery Capabilities
Wholesalers maintain expansive transportation fleets and logistics networks to facilitate delivery of inventory to customers. Retail, commercial, and distributor buyers can have palletized orders of any size delivered where and when they need it. This on-demand delivery service enables flexibility and responsiveness down the supply chain. Buyers don’t have to arrange piecemeal shipping.
Offering Marketing and Customer Insights
Wholesalers use their overview of supply and demand across industries to provide additional value-added services for suppliers and buyers. These include shared marketing campaigns, sales education, product data management, and consumer insights. This helps guide production, inventory planning, and go-to-market strategies across the value chain.
Types of Wholesalers
There are several specialized types of wholesalers:
- Merchant wholesalers – The most common, they buy goods from suppliers and resell them to businesses. May be general merchandise or specialize in a category.
- Agents, brokers, distributors – A hybrid model, they broker sales as middlemen but don’t take ownership of inventory. Earn commissions facilitating transactions.
- Cash and carry wholesalers – Self-service model where small businesses buy goods at discounted prices and transport them.
- Truck wholesalers – Sell and deliver products directly from warehouses to customers along local routes.
Technology Impacts on Wholesaling
Wholesalers continue to adopt advanced technologies to improve visibility, efficiency, and services across supply chains:
- EDI and inventory management systems enable real-time views of stock levels, orders, transportation.
- Digital ordering and customer portals simplify B2B purchasing workflows.
- Data analytics inform strategic decision making around pricing, inventory planning, logistics.
- Automation optimizes warehouse picking, sorting, tracking to fill orders faster.
Despite digital disruption, wholesalers remain an essential conduit matching supply with demand in markets worldwide. They continue adapting technologies and business models to add value through evolving supply chain challenges.
Wholesaling provides vital connective tissue in global supply chains, moving enormous volumes of goods from suppliers to businesses and ultimately consumers. While wholesalers work mostly behind the scenes, their capabilities in streamlining transactions, logistics, and data-driven distribution underpin the availability and accessibility of products we rely on daily. Their role is likely to remain indispensable despite ongoing technological changes across modern supply chains.
Steady Growth for Wholesale Trade Globally
Wholesale trade has seen steady growth worldwide, according to OECD data. Total wholesale trade sales globally grew from $29.7 trillion in 2016 to $33.3 trillion in 2018. This represent an average annual growth rate of around 5%. Food, beverage, and tobacco wholesaling makes up the largest share at 30% of all wholesale sales globally. Wholesaling provides essential distribution capabilities to meet rising consumer demand across markets.
Wholesale Trade Key to US Economic Growth
In the United States, wholesale trade represent a major component of GDP. According the US Census Bureau, there was over $5.4 trillion in US wholesale trade sales in 2018. This accounts for about 3% of total US GDP that year. Durable goods wholesaling, including machinery, metals, and electronics, make up the biggest share at 43% of US wholesale trade. As consumer spending drives US economic expansion, wholesale enables access to goods.
Developing Economies See Wholesale Sector Expansion
With rising consumer classes in developing economies, domestic and international wholesalers facilitate supply of goods. In India, the wholesale and retail trade industry represent about 15% of GDP. Total sales grew from $388 billion in 2011 to over $700 billion in 2017. Wholesaling supports economic growth as consumers spend more. China’s wholesale and retail sector accounts for 30% of GDP, highlighting wholesale’s importance.
References:
https://dx.doi.org/10.2307/1247896
http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=6
http://www.eu-lieferanten.de/
https://data.oecd.org/wholesale-retail-trade/wholesale-trade-sales.htm
https://www.census.gov/data/tables/2018/econ/wholesale-trade-report.html
https://blog.transitfreight.com/role-of-wholesale-trade-import-export-in-india
