The Crucial Role of Manufacturers, Distributors and Wholesalers in the E-commerce Sector
Every e-commerce business depends on manufacturers, distributors, and wholesalers, whether directly or indirectly to function properly.
Updated: May 31, 2024
A lot of stakeholders including the customers and the people who produce the goods and get the finished product to the customers are involved in the e-commerce sector. Manufacturers, distributors, and wholesalers are the most popular stakeholders who are involved in getting products to end users or consumers.
Every e-commerce business depends on manufacturers, distributors, and wholesalers, whether directly or indirectly to function properly.
What is a Manufacturer?
A company or business entity that involves in producing goods and selling them to wholesalers, distributors, or customers is known as a manufacturer. The parts and raw materials used to make some products are created by some manufacturers where as finished goods or products are assembled and produced by other manufacturers.
Manufacturers are responsible for making products that reach the end users through wholesalers and retailers in e-commerce. Sometimes a distribution channel is needed by manufacturers to get goods to the consumers. This is generally required when they cannot sell the product directly to end users.
What is a Distributor?
Distributors are resellers of products which could be an individual or an entity. Bulk orders are placed by them with manufacturers and they sell small quantities to wholesalers, retailers, and end users. Usually, distributors are the first point of contact for manufacturers, and they distribute products in the supply chain to different people.
Usually, distributors can work with various manufacturers at the same time. But, they can not trade similar items produced by different manufacturers, because they often sign contracts with manufacturers to distribute only their products and not their competitors.
Distributors have a considerable influence in the promotion and marketing of goods or products and often get a service fee from the manufacturers they work with. They help increase sales of products by promoting products to different parties and customers.
What is a Wholesaler?
A trader who purchase goods in large quantities and then sells them in smaller units is called as a wholesaler. Wholesalers is an intermediaries between manufacturers and the retailers who help reach the goods to end users. Wholesalers can buy goods from different manufacturers and distributors like distributors. But, they do not have agreement to sell an item exclusively. Manufacturers can also work with different distributors to stock their inventory.
Wholesalers get discounted prices on bulk orders and make profit. Generally, they purchase products in bulk and then sell smaller units to customers at higher prices to make profit.
Difference between Manufacturers, Distributors and Wholesalers:
Manufacturers, distributors, and wholesalers often work together i the supply chain to get goods into the hands of retailers. The products are produced by the manufacturers and provided to the distributors, who then sell them to wholesalers. The wholesalers then sell these products to retailers, who sell to the end users.
Working with Manufacturers:
It is best to work with manufacturers if you intend to buy goods in bulk volumes as they sell in very bulk quantities. Distributors mostly work with manufacturers to sell products to wholesalers. You may have to work with various manufacturers if you sell various types of products, which may not be feasible if you run a small store.
Working with Distributors:
Distributors work directly with manufacturers to reach goods to the buyers, or other business owners. Distributors mostly offer one type of product and sell in bulk at a cheaper rate. You can buy the products in bulk from a distributor at a cheap rate as a wholesaler. You may also have to work with various distributors to stock your store.
Working with Wholesalers:
Generally, wholesalers work with retailers. But, sometimes they may also work with other wholesalers. They buy the good or products in bulk amount from manufacturers or distributors and then sell to B2Cs who then sell them in small units to consumers.
Some differences between manufacturers, wholesalers, and distributors using some key features include:
Customers:
Although, manufacturers, distributors, and wholesalers all have the goal of reaching products to end users, these everyone of them have different customer entities. Manufacturers generally work with distributors to get goods to wholesalers, retailers, and sometimes end users, whereas distributors work with wholesalers and wholesalers works with retailers.
Relationship with manufacturers:
The first point of contact with manufacturers are distributors who typically sign a contract with them stating that they can not sell the goods of their competitors or can only distribute in a particular location. A manufacturer can work with various distributors in different locations to reach their goods to various buyers.
Generally, wholesalers work with distributors to reach products to retailers. But, sometimes wholesalers can directly get the goods or products from manufacturers without going through the distributor. The wholesaler do not enter an agreement with the manufacturer in this case.
Distribution channel:
The path that a company goes through to deliver services to consumer is described by a distribution channel. Distribution channels can be classified as three main types. These include:
- Zero Level or direct channel (Manufacturer to Customer): An intermediary in the supply of goods to consumers can be excluded in Zero Level or direct channel as manufacturers work with customers directly in this channel.
- One Level channel (Manufacturers to Retailer to Customer): A retailer is used as an intermediary to get goods to customers in One Level channel. Manufacturers sell to retailers in this case, who then sell to customers.
- Two Level channel: (Manufacturers to Wholesalers to Customer): The wholesalers buy bulk products from manufacturers and sell in units to retailers who then sell those to end users.
- Three-Level Channel (Manufacturer to Distributor to Wholesaler to Retailer to Customer): The manufacturers work with a distributor or an agent who assists in selling goods to wholesalers in Three-Level Channel. The wholesaler then sell the products to retailers, who finally sell to end users.
Manufacturers exists in all distribution channels, whereas wholesalers are generally excluded in two-level and three-level channels, and distributors are only involved in three-level channels.
Scope:
The operations of wholesale has a limited scope as they usually sell only to retailers where as the operation of distributors has a wider scope as they can sell to multiple parties like wholesalers, retailers, and end users.
Revenue:
The business of manufacturers get finance by buying large quantities, which allows them to keep producing. Wholesalers get finance from retailers by buying smaller units at a price slightly higher than the manufacturer. Distributors are generally considered as an employee of a manufacturing company and they also get a percentage for the goods they sell, depending on the agreement with the manufacturer.
Roles of manufacturers in the supply chain:
- The primary role of a manufacturer is to produce goods. They are responsible for the operation of the production system to produce goods for sale. Although, most manufacturers usually stick to one type of product, they may produce different product in the same industry depending on the the kind of business.
Roles of distributor in the supply chain:
Some of the major roles of a distributor in the supply chain include:
- Distributors serve as a point of contact who is a middle man or intermediary between manufacturers and end users. It is the responsibility of distributors to find B2B and B2C buyers. The charge of taking orders, managing inventory and distributing goods to wholesalers, retailers, and end users are taken by them.
- Distributors often have the marketing channels and ensure that other people have access to manufactured goods by applying marketing strategies and promotional activities to expand their customer base.
Roles of wholesalers in the supply chain:
Some of the roles of wholesalers include:
- Generally, manufacturers sell in bulk which is much for a retailer or end users to buy at a time. Wholesalers acts as bulk breakers by buying goods in bulk and then selling it in small units to retailers. Manufacturers may find it difficult to get goods to retailers without a wholesaler because they can't buy in bulk.
- Wholesalers often serve as an indirect warehouse for manufacturers as they generally buy various goods in advance to make it always available for customers. Wholesalers help manufacturers keep producing by helping them get rid of stock.
- Some logistics constraints may be encountered by manufacturers if they try to deliver directly to consumers and retailers. The stress of having to distribute goods to customers in different parts of the world can be removed by a wholesaler.
- Wholesalers are responsible for getting the goods sold once they get goods. The risk of anything that happens to the goods is taken by the wholesalers in this case. They also responsible for the profits and losses they may get on such products.
Factors that need to consider while choosing a supply partner for your online business:
Your supplier is an important component of running your business as an e-commerce business owner. You can either work directly to the manufacturer, or with a distributor or buy from wholesalers depending on the type of business you are handling. It is best to follow some tips to choose the right supply partner as not all partners and suppliers are equal. Some factors that need to consider when trying to choose a partner for your business include:
Role in the supply chain:
It becomes easier to choose the right partner when you understand the roles of each party in the supply chain. Make sure to do your research thoroughly to understand the best party in the supply chain that will work for your type of business.
Cost:
Price or Cost is one of the most important factors that need to be considered while choosing a partner or supplier for your e-commerce business. You can compare the price of getting goods from one person to another.
Business model:
The supply chain party you choose to work with as a business owner will depend on your business model. You may have to choose between a manufacturer, distributor or wholesale distributor. To work with a manufacturer or a distributor is the best option when you run a B2B or wholesale business. However, working with a wholesaler is more viable than working directly with the manufacturer if you run a B2C store.
Business size:
Business size is another factor to consider when choosing a partner for your online business. You need a supplier who can provide the number of goods you need if you run a medium-sized store and can buy in bulk.
Expertise:
Suppliers with expertise in a particular product or industry is best to work with. It is always better to work with suppliers who is having expertise and knowledge in a specific industry than a vendor who is offering a wide range of unrelated products.
Quality:
You must sell products that meet the expectation of your customers to keep your store running. Therefore, it is best to work with suppliers who is having a history of selling quality products. You can confirm that your potential supplier offers original goods by checking reviews and conducting research.
Location:
It is easier for you to get your goods delivered when a manufacturer or distributor is closer. Sometimes, it is better to work with suppliers close to you as an e-commerce business owner, especially for logistics reasons. However, you can work with a supplier who is far away but offers better deals and products as long as there is a reliable shipping method.
Product portfolio and offering:
It is important to know if the exact brand and type of product you want can be offered by your supplier. It may also help to work with a wholesaler that can provide for your different product needs if you sell different types of goods which is better than working with various suppliers for your different needs. You won't have to work with multiple wholesalers if you work with a partner that offers essential products you need to sell.
Shipping and availability:
You also need to ensure that your partner will be available to deliver consistently if their products can meet your desired quality. Make sure that you work with a partner who offers reliable shipping so that you can meet the expectations of your customer as delay in delivering your goods can affect your business.
Customer service:
It is crucial to work with a partner that provides good customer service as you want to easily reach out to someone who will consistently have products that you need to meet your customer satisfaction.
Tips for choosing the right partner for your business:
Some tips and steps to help you work with the right partner include:
Do your research:
You need to first find suppliers those have products you are interest in. Consider conducting research to find products that are likely to sell well if you are a business owner who is starting the business for the first-time. Do a through research for potential suppliers for your product once you know the type of goods you want.
Know where to look:
You can find suppliers based on different factors, including price and product portfolio by using e-commerce platforms and search engines.
Check for reviews:
You will be able to see reviews from other buyers if you are using e-commerce platforms for finding right supplier as review from other vendors about a particular supplier is essential before doing business with them. Search engines and websites can also be used to find reviews related to a particular product or supplier.
Communicate with suppliers:
You must discuss your requirements with the suppliers once you find one you can work with and also if they can fulfill them. Also ask them if they can provide a particular brand that you need or do they have a MOQ, and does it work for you? and if they are willing to send samples over? A constant channel must be there where you can reach your supplier to communicate your needs and tackle issues. It is better for you to consider someone to whom you can easily reach out.
Negotiate to find the best prices:
The best supplier to work with is someone who provides the best product margin. Although, you get low prices if you buy goods in bulk and in large quantities, you will need to negotiate to reduce the cost of goods and find the best margins. You can present a better proposal that can work for both of you or propose a counter offer to your supplier. For example, you can offer a long-term partnership, pay a down payment or negotiate on the MOQ to get better discounts.
Order samples to confirm the quality:
A great way to test the good is to ordering samples before buying in bulk as you will have a better idea about the goods and if the supplier offers great customer service. Sending samples over will not be an issue for a supplier if he is sure of the product they offer.
Don't rush into a relationship:
You must compare different suppliers, work with various suppliers and monitor their performance until you find a perfect one for your product needs before building a long-term relationship.