What Is Wholesaling? – Importance, Working, And Role In Supply Chain

What Is Wholesaling

Wholesaling is a business practice where the business owner purchases goods in bulk from the manufacturer and then resells those goods to retailers for a profit. The wholesaler is the business entity or individual that connects the producer of a product to retailers. Hence, they are considered as an integral component of a supply chain. A wholesaler can sell a single product or a wide range of products based on the business.

In this article, you will learn about what is wholesaling and what is the work of a wholesaler. In addition to that, you will also learn about how a wholesale business works in general. Next up, we will share with you the types of wholesaling business options. Finally, we will discuss the importance of wholesalers in supply chains and their roles. Hence, to learn more, read on through to the end of the article.

What Is Wholesaling?

What Is Wholesaling

According to Investopedia,

“Wholesaling is the act of buying goods in bulk from a manufacturer at a discounted price and selling to a retailer for a higher price, for them to repackage and in turn resell in smaller quantities at an even higher price to consumers. Due to the large quantities purchased from the manufacturer at a discounted price, the wholesaler can also pass on this discount to retailers.”

Since wholesalers buy items from the manufacturers in bulk, they are able to resell to retailers at a discounted rate. The retailer also buys in a smaller bulk from the wholesaler and sells at a price to the consumers, which is reflective of the overall cost of doing business. 

Wholesaling is also popular in banking and finance, apart from the physical distribution of products. Furthermore, it is also common in industries like telecommunications and energy. These wholesalers offer large-scale business-to-business services to enterprises in various industrial and commercial sectors at discounted rates.

How Does A Wholesaling Business Work?

How Does A Wholesaling Business Work

According to the Wall Street Mojo,

“To begin, a wholesaler invests in buying and storing large amounts of products. They then profit from selling those products in small quantities to merchants in a town, city, or marketplace. The concept gained traction in the 19th century following the success of mass production and marketing strategies.”

In a wholesale business, the wholesaler purchases goods in large quantities from manufacturers and resells those goods to retailers. The retailers then sell these goods to final consumers. The process here depends on the concept of economies of scale.

Mostly, wholesalers concentrate on the business of sales and delivery to retailers. Hence, wholesalers play the role of an intermediary in the supply chain. As the wholesaler purchases goods from the manufacturer in bulk, it becomes more cost-effective as a result. The wholesaler receives discounts on the bulk than what the price would be if the wholesaler bought items individually.

In other cases, there can be multiple levels of wholesalers in a given supply chain. They might be selling a similar or diverse range of products from a single manufacturer. Furthermore, a single wholesaler might consider selling to multiple retailers. There are wholesalers in the case of services as well, when a service provider offers a particular service at a lower price to a business in bulk.

Types Of Wholesale Businesses

Types Of Wholesale Businesses

The following are the major types of wholesalers you will find in a supply chain:

1. Merchant

These wholesalers purchase large quantities of products from producers and own them while taking stock. They also sell those items in large quantities to retailers and other wholesalers, but not consumers. These wholesalers work independently and act as middlemen between retailers and manufacturers. 

2. Merchandise Agents or Brokers

These wholesalers (agents) purchase products from different manufacturers to resell them to retailers. They assist in the storage of the product and do not take possession of goods. On the other hand, merchandise brokers earn profits from commissions on sales and act as a negotiation link.

3. Mini Offices And Branches

In many cases, the manufacturer sets up a new branch or opens a new small office to become a part of the wholesale chain. They directly take orders from retailers and sell the product without middlemen.

4. Specialized Wholesalers

These wholesalers have specialization in a particular product or commodity and also possess knowledge of their pros and cons.

Importance Of Wholesale In Supply Chain

Importance Of Wholesale In Supply Chain

The process of wholesaling is a step in the supply chain. Retailers purchase goods in bulk from wholesalers at a discounted rate and then sell those products in smaller packages to consumers to cover the cost and generate profits.

According to Netsuit.com,

“Wholesalers operate as middlemen between product manufacturers and retailers or other businesses. They make a profit by buying products in bulk at a discount and reselling them in smaller quantities at a higher price to individual retailers. Many distributors specialize in specific industry sectors or product categories and build up a great deal of valuable industry expertise.”

Apart from wholesaling operations, wholesalers also do other jobs. Some of them include the promotion of products, warehousing, financing, transportation, management, consultation, market intelligence, risk management, and more.

Since there are warehouse expenses, wholesalers have greater control over the price. This expense also fluctuates on the cost of goods, efficiency, and inventory turnover. Since they are not manufacturers, these wholesalers do not offer after-sales service and product support.

Final Thought

What is wholesaling? – The wholesaling business consists of the distribution of end products to retailers. Wholesalers purchase goods at lower prices in bulk from manufacturers so as to sell to retailers at a profit. Retailers are able to save costs through wholesalers when they buy in bulk. The retailer then repackages these bulk items in small quantities to sell them to consumers.

Wholesale is an important part of the supply chain, which starts with a supplier of raw materials or goods in bulk and ends with a sale to final consumers. Basically, wholesale means buying large quantities of items and reselling them to retailers and merchants. Do you have more information to add on wholesaling? Share them with us in the comments section below.

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