Transcript for:
Understanding Wholesalers and Distributors

Retailers don't have any place to put all that stuff. Just in the back storage room. Exactly right. Unless you have some like alternate dimension to store all of your things in. No one will have anywhere to sit during break time. Exactly. We're just sitting on boxes, right? Eat your lunch at boxes. Hello everybody I'm Jared. Hi, I'm Melinda, and welcome back to The Secret Life of Inventory. This is a show where we talk about everything inventory related. And today we are going to be talking about wholesalers and distributors. So there is a lot of misconception. People kind of mix these two up a lot. So today we're going to be covering about the differences between the two. Uh, what they do, what their roles are and the supply chain as a whole, things like that. Honestly, I never even thought about distributors and how things were made before. Like in my mind, there was only wholesale and retail. There are so many interesting things that make up our modern world, and if you're interested in learning more about inventory management and how it affects our daily lives, be sure to stay tuned for more. So, to start things off, we need to understand what a supply chain is, because every part plays a different role, and understanding how they affect each other is key. So could you explain to our listeners what is a supply chain and what does it look like in terms of hierarchy? Yeah of course. So essentially when you just when you boil it down, a supply chain is the journey that any product would take from its creation all the way until it gets to the consumer. Right. So there is a bit of a hierarchy, as you mentioned, kind of split up into a lot of different people and organizations. It's a huge interconnected web of things. But if you want to really just kind of narrow it down, it kind of starts off with your your vendors, your suppliers, right, who supply the manufacturer with the raw materials that the manufacturers will then use to create a finished product. Right? And once they have that finished product made, they're going to sell that finished product to wholesalers and distributors. Now they're kind of on the same kind of rung, I suppose, of the ladder of the supply chain. Right. They both kind of buy bulk shipments from the manufacturer. They take those bulk shipments, they break them down into smaller shipments, and then they sell those to the retailer. Right. And then from there, the retailer will then break those bulk shipments down into individual units and then sell those to the consumer. Right. So you start with the suppliers, move on to the manufacturers, then you're on to the wholesalers distributors, then your retailers, and then finally your consumer. Yeah. So basically everything involved in that process. So the process, the people, the raw materials, everything, the information, all of that stuff is actually considered a part of the supply chain. So they are quite, you know, complex. Why don't manufacturers just sell directly to retailers? That's a great question actually. Um, and really the answer is it's just a little too complicated. Right. So manufacturers are really good at doing that one thing, right. Creating products. And they have a lot to worry about. Right. So when you're creating any product, there's going to be a ton of different pieces that you're going to have to put together obviously to create that thing. Right? So with the manufacturers, they have so much to worry about already when it comes to storing raw materials in their warehouse. Right? So if they had to also on top of that, worry about storing large quantities of finished goods as well. They're going to need a lot more space for that. They're also going to need a lot bigger team, right? They're going to need people who work in sales to work directly with retailers, right, to sell the products that they're making. They're going to need a lot more people working in logistics, like people working as delivery drivers, things like that, because they're going to have to ship a lot more frequently rather than just building up a mass amount of a product and selling that off to one person, they're going to have to go and ship all these smaller shipments out, right? So it just becomes a lot more complicated. It comes a lot more expensive to. Right. So that's a big reason why manufacturers kind of don't they don't really do a lot of their own wholesaling, distributing. It just makes more sense for them to just kind of take all of their stuff, sell it in bigger shipments to people, and then, you know, they don't have to worry about all that. Yeah, just focus on what they're good at. Exactly. Yeah. On the adverse side of that, there's a reason that two wholesalers are there, and there's a reason that retailers aren't just going directly to manufacturers. And again, it's space, right? Yeah. You're not going to be able to to get that minimum order because manufacturers will pretty much every manufacturer has a minimum order if you're going to order them from them. Right. So you got to order that minimum order, but that it tends to be a lot. It's a larger amount of stuff. So retailers don't have any place to put all that stuff. Right. Exactly right. Unless you have some like alternate dimension to store all of your things in, you know, which I mean, that would be great, but. No one will have anywhere to sit during break time. Exactly. We're just sitting on boxes, right? Your lunch boxes. Hey, that's actually not a bad idea, right? So yeah, there's so there's a reason that the all of these different, you know, people are kind of staying in their lane doing their thing because there's a lot that goes into each and every one of the different organizations and steps of the supply chain. Yeah. What are some examples of items that wholesalers sell? I mean, yeah, everything really like anything you can imagine, like, um, electronics, clothing, housewares, food, beverages, you name it. There is a wholesale market in involved in in those products for sure. Even electricity can be bought wholesale, believe it or not. So yeah, like pretty much anything. I remember doing some research and I learned that the global wholesale market grew to 48.8 billion in 2023, and by 2027, it's expected to grow to 61.5 billion. Yeah. You know, that doesn't surprise me. The wholesale market, it's like it's massive. It's huge. I remember reading something that like the top 15 wholesalers in the world, they have a combined revenue of like $1 trillion or something like that. So it's like it's a lot. I don't even remember how many zeros are in a trillion. Too many. Is it ten? I actually don't even know. So what about distributors? What are they and how are they different than wholesalers? Yeah. So here's where things get a little bit murky. And it's and this is why so many people kind of just like use wholesaler and distributor interchangeably because they are very, very similar. And they do perform a lot of the same tasks essentially. Right. So both the wholesaler and distributor, they're both buying bulk shipments from manufacturers, right. That they again, they didn't break down sell to retailers. Right. But it really it lies in like who they're working for. Essentially distributors often have a lot more responsibility than wholesalers. So essentially wholesalers -a good way of looking at it would be like wholesalers are concerned about the retailer right. They just want to make sure that the retailer is happy they're supplying the retailer with what the retailer wants to move. They're not even concerned about the product necessarily that they're supplying. They don't really care if it sells. Right? I mean, I shouldn't say they don't care if it sells, because of course they want it to sell because then you know, exactly right. But they're more concerned about, um, selling anything. Right. So if what they sell to the, the retailer, that product, the specific product doesn't sell, they'll find another product and supply them with a new product. Right. So it's whatever works is kind of what's the wholesalers mindset is that I just want to make sure that retailers happy. Now adversely the distributors, they're more concerned about the manufacturer, right? They work for the manufacturer or the person who's producing the product itself. They're more concerned about the product, right? So they will perform things like, you know, sales and things like that. And they want to make sure that they're supplying the right retailer. Right. So they're making sure that whoever they're supplying with the product, they're going to sell the product. They're not just giving a product to somebody and it's going to sit on the shelf. Right. So they're very concerned to make sure that the product gets in the right place. Right. So again, they're taking a much more active role in finding that. So that's kind of the big difference. A great example would be okay so say you own a bookstore right. And you have a wholesaler and a distributor. Right. So the wholesaler would be really concerned about just making sure they're giving you books that are going to sell. That's all they're worried about. They don't care what book it is, just so long as it's selling. That's what they're worried about. They'll keep supplying you with different books if you ask. Right. Essentially. So they're working for that bookstore now. A distributor, on the other hand, they're really working for the publisher, right? They want to make sure that that book, if you if they put it in that bookstore, that people are going to buy it. So they're looking at things like, how big is the bookstore? Where is the bookstore located? You know, is the demographic of that area - would it support the interest for that specific book? Right? Would it work better in a mom and pop bookstore, or would it work better in a department store or an indigo, you know, like so they're really - It's definitely a lot more strategic thinking. Way more strategic. They're not just like throwing big boxes at people, you know, they're making sure they're vetting the people to make sure that they are actually going to be able to sell what they want. It seems like a lot of brain power to use. Too much. Much wholesalers are way easier. Just go wholesale. So if someone wants to work with a distributor, what are some things that they should keep in mind to find the right one? Well, big one is going to be location, obviously, not just geographic location, because often distributors are going to work in very, you know, confines of a certain geographic area. Right. But it's also location, as in like certain retail stores, certain brick and mortars, you know, for example, there are exclusive distributors who really deal with like high end products, like luxury items, you know, like handbags, for example, certain handbags like Gucci, and, you know, all these Louis Vuitton, Chanel. Yeah, all these high end ones. Only certain stores actually are allowed to carry them. Right? They want to make sure that they keep that identity, that luxury identity. Not easy accessible. Exactly. Scarcity. Right. False scarcity. Yeah. But these, um, a lot of these products, they take a lot more time to manufacture and stuff because they are a lot more detailed and, you know, high end or whatnot. So there is somewhat of a scarcity too. So they want to make sure that they can charge that premium price by where they're, you know, putting that another big thing to look at when you're looking for a distributor would be their experience. You know, how much experience do they have in the field, you know, um, how long have they been doing it? Are they good at it? What are their sales numbers like? You know what I mean? So you want to take a look at that as well. Um, you also want to kind of take a look at what industries they kind of tailor to. Right. So for example, if you're selling a shampoo, um, you want to make sure that that shampoo is getting to the right places. So, um, you would go for, like, salons, um, things like that. So is the distributor that you're working for do they have experience working with salons? Do they have connections with other salons? What type of salons are they more, you know. In the mall or boutique? Exactly. Yeah, exactly. Um, so things like that. We were talking before about luxury items. Right. So there are kind of two different types of distributors really. There's people that are very much more exclusive. So they deal with luxury items and then there's like intensive, which is like big department stores. Right. So rather than getting your, you know, bag and a smaller shop and charge a lot for it, you get your bag in like say a, a big department store, like a Walmart or a Sears or something. A Macy's? Exactly. Yeah. Exactly. Um, yeah. And then you just kind of, like, try and sell more of them. Maybe not for quite as much money, but, you know, things like that. So it really depends on how you want to market your, um, your brand, how like what you think, where you land, you know, as far as, like, are you luxury or are you more, you know, economical I don't want to say cheap but more economically priced, you know, like where you land in that in that whole field is going to is really going to depend on who you go with. And another one that people kind of overlook is, is just ethos. Right. So what is the like? How how does that distributor carry to themselves? What are their goals? What is their mission? You know, do they have the same values as you? Because, I mean, when you're a small business, you tend to want to do business with people who have the same values. Yeah, you don't want sketchy people. Yeah. People who aren't just out for the money. Right. People who care about people and experience. Exactly. Right. So someone who aligns with you, I think is, is a big one that it shouldn't be overlooked for sure. For wholesale distribution, what would you say are some of the main challenges they're facing right now? I would say a big one would probably be, um, I mean, it's something that we did talk about, but, um, manufacturers are are actually starting to sell directly to consumers. Not a ton of them, but it is starting to happen a lot more. And the reason for that is, um, manufacturers have more of a connection to the consumers now more than ever, with the advent of e-commerce and things like that, it's connected them a lot more. There's no like middleman, or you don't have to have a middleman. Exactly. You can cut out the middleman entirely, right? So not even just consumers, but retailers too, right? You can get connected with a lot more retailers like directly. You don't have to have that liaison. The the wholesaler and the distributor can just jump right to the retailer and again, or just jump right to the consumer. Right. Because, I mean, the big thing with manufacturing before was they didn't want it's expensive to do a run of production no matter what. And then oftentimes you don't want to be left with parts that are products that you're not selling. Right. So the idea was you would get an order from a wholesaler, you know, that those are all accounted for, that they're all going to go out the door right with when you're dealing with individual orders, it becomes a lot more difficult. But now that with the, you know, e-commerce. You can pre-order, yeah, people. Can pre-order. They can put all those orders in. You can pile them up until you have enough to do a run. Then you do a run, right. The problem, of course, is is more expensive. They're going to have to get like, again, more logistics people, more sales people, things like that. But a lot of manufacturers are seeing that, you know, it's worth it. It's a little bit of an initial investment, but you can charge way bigger markup. You know, you're not you're not forced to kind of charge these really discounted rates to the wholesaler and distributor. You can charge what their wholesalers are charging to. Yeah, you can get more money. You don't have to pay the wholesalers or distributors. Yeah. Exactly. Right. So that's a big one. Right. Um, demand forecasting is also a tough one for wholesalers. Um, I mean, you can do the best demand forecasting in the world. There's always going to be discrepancies. There's always going to be times where you've ordered too much or you didn't order enough and you're missing shipments either way is bad, right? Either you're storing things and you're eating up your carrying costs or you're, you know, you're not fulfilling orders and you're missing out on those, those sales. Right? So either way is bad. So I mean, it's becoming more and more it's it seems like any way that the demand forecasting is becoming more and more difficult just with ebbs and flows, things things happen, you know, like Covid 19, for example, where, you know, it's it's really hard to predict in today's modern day. And again, you can never, always pick the perfect product. Sometimes you might think, you know what this product is going to do really well, and then you buy a ton of it, and then it just sits in your warehouse stock. It turns into dead stock. Exactly. So no one likes dead stock. No. Yeah. Yeah. So that's a that's the big one. Um, and then I lastly I would say um, growing competition. You know, there is so many you can't even go on TikTok these days without somebody telling you that, oh, this is how to make $1 million in an e-commerce shop, right? Or here's how you. Yeah. And a lot of that is, is fueling this um, this surgence into people are seeing that, like I said, there's $1 trillion, 15 biggest countries, $1 trillion. That's a lot of money, right? Everyone wants to get a piece of that. And it seems like it's easy money. It's not, of course, but it seems like it is. So a lot of people are getting into that and not not even just locally, but also like internationally. Right. So you're going to have to start competing with people in other countries, foreign countries who are kind of like undercutting you. So constantly people are in the wholesale market right now are getting undercut. That's a big thing, right? So growing competition is making it really, really hard for, um, wholesalers and distributors. Yeah, I know Amazon is like one of the biggest e-commerce platforms, but in the recent like two years, there's this new online marketplace called Temu. I'm not sure if you heard about it. I have not actually. Yeah, but it's operated by a Chinese company. But basically they sell things like super, super cheap. And last year they had a grand opening in Canada. So there's free shipping on everything. There are 30% off coupon codes that you could apply at checkout, and they would give you an expected delivery date. And if they were like a day late or something, they would give you $5 in credit to apply for your next purchase. And one of the biggest things was if you bought an item and that item went lower, you could go back to that item and like get the credit back. So yeah, you just like collect the differences. Look out Amazon. We got a new, uh, a new player who has entered the game. Yeah, it rose to the charts like really fast. And one thing that they did really well was they really gamified the shopping experience. So like if you like referred the app to a friend you could win free items, get points and like you could just get a bunch of free stuff just by referring your friends to it. So yeah, Temu like soared to the top. It's actually crazy. Yeah, I know what I'm doing after this podcast. I'm going to go buy some stock. And Temu. There was also AliExpress. Um, yeah. For AliExpress you can buy phone cases for like 1 to $3. Oh, it's actually crazy. I didn't even know that was possible. How can you even manufacture them for that cheap. That's actually super impressive. Yeah I mean that actually reminds me of another challenge that wholesalers um, face is like the seamless and responsive, you know, reaction time they need to have for consumers because everyone's so used to getting things now or free shipping, all that stuff. So I mean, we've expected that because of Amazon, right? One day shipping. Exactly, you order something and it's at your doorstep by the time you've closed your browsing window, you know. So and that's what we need to like. We have to understand that not everyone is capable of that. Amazon has an incredibly good distribution process, so other companies aren't going to be able to keep up with that kind of demand, you know? So I mean, that's a big one, is keeping up with the expectations of the modern day e-commerce consumer. Yeah. We're so used to instant gratification. Oh, I know, I remember seeing this one meme where someone was like, kids these days will never know the pain of having to, like, run to the washroom during a commercial break and then running back so you don't miss your favorite show. That is that cuts deep. That's a deep cut right there. I, I do remember that very, very well. You know what I mean? I hope the best for the next generation. That's something that they don't need to experience, you know. All right so that's it for this episode. Thank you guys so much for tuning in. And if you're interested in learning more about inventory management, be sure to subscribe on Apple Podcasts, Spotify, YouTube, or wherever you listen to your podcasts. Yeah, and please leave us a comment or review whatever and share it with your friends, your colleagues, whoever you think might enjoy this episode. And if you have an idea for future topics you want us to cover, please just leave a comment down below and we'll try and cover it in the next episode. So yeah, thanks again for watching and we'll see you in the next episode. Bye. Passing grade. I think. I think that's a solid B minus.