What will happen if the wholesalers are eradicated from the supply chain?

Published: 04th April 2011
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Wholesalers are the first link in the supply chain that performs a number of useful functions besides facilitating manufacturers and retailers. In spite of their useful services wholesalers are loosing some ground in the current era. Dropshipping is a new concept that has eliminated the need of wholesalers from the supply chain. A drop shipper appoints his own distribution staff or opens his own retailing outlets to sell directly to the retailers. This seems to be very beneficial for the large wholesale manufacturers. According to me, a wholesaler cannot be eliminated completely from the supply chain due to the valuable services he provides to the manufacturers as well as retailers.

The question here arises what will happen if wholesaler is eliminated completely from the supply chain? The answer lies in the significance of its services for the supply chain members. First of all, if wholesaler is eliminated from the supply chain, there should be someone to perform his functions. Dropshippers are the ones who manage to perform the functions of wholesalers themselves. But is every producer of wholesale products capable of doing so? Obviously not, as majority of producers are small ones who manufacture a small fraction of the total wholesale supplies. They do not have enough resources to capture clients directly. Most of them have no large resources to perform marketing functions themselves i.e. packing, shipping, grading etc. So, without wholesalers in the supply chain, the business of the small manufacturers gets greatly affected as they are not able to perform the functions of wholesalers alone with small scale of operation and shortage of resources.

Secondly, it is not all about small manufacturers only it is about many other small retail businesses as well which are served by the wholesalers. If manufacturers donít perform these functions, their burden falls on to the shoulders of retailers. Here again availability of resources becomes a major problem for the small retail businesses in performing the tasks of wholesalers.

Thirdly, if wholesalers are eradicated from the supply chain there will be no one to create time utility and to keep the wholesale price steady? Wholesalers buy when the products are widely available and prices are low and sell when the prices are high. In this way, they create time utility and help the retailers to earn high profit margins on resale.

Fourthly, the wholesalers relieve the retailers to hold large inventories and bear their burden of cost. Besides that, they bear all the storage and distribution risk and help the retailers in steady flow of goods from reliable resources. On the other hand, wholesalers give bulk orders to the manufacturers and access the demand of the wholesale products and help the entire wholesale industry to operate efficiently. If they are eliminated from the supply chain, either the manufacturer or the retailer will perform these functions. It becomes very difficult for them to spend extra time, effort and huge cost on these functions. Even if they do so, they would not be able to manage these functions as efficiently as wholesalers do because they have many other things to manage besides performing these functions.

Therefore due to efficient handling of wholesale orders and effective distribution of wholesale products, the wholesalers cannot be eliminated from the supply chain. They are bound to exist since decades and their valuable services can never let them get eliminated from the supply chain ever.

William King is the director of Wholesale, Drop Ship and Wholesale Suppliers. He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements.

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