Wholesale Trade

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Wholesale trade

Wholesale trade deals with the bulk buying of goods from various manufacturersdeals with the bulk buying of goods from various manufacturers either locally or from overseas and the breaking down of this bulk into smaller either locally or from overseas and the breaking down of this bulk into smaller qua

quantintitieties s whiwhich ch are are thethen n solsold d to to the the retretailailerer. . MidMiddledlememen, n, be be thethey y whowholeslesaleale merchants, mercantile agents or wholesalers provide this intermediate link in the merchants, mercantile agents or wholesalers provide this intermediate link in the chain of distribution before the goods are sold to the retailers.

chain of distribution before the goods are sold to the retailers.

THE ROLE OF THE WHOLESALER IN

THE ROLE OF THE WHOLESALER IN THE CHAIN OF DISTRIBUTIONTHE CHAIN OF DISTRIBUTION

CHANNELS OF DISTRIBUTION CHANNELS OF DISTRIBUTION

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1. TheThere re are are foufour r mamain in chachannennels ls of of disdistritributbution ion anand d mamany ny 'in'intertermedmediariariesies' ' or or middlemen involved before goods can finally reach the consumers as shown in middlemen involved before goods can finally reach the consumers as shown in the following table:

the following table:

2. In reality, the channels used are very varied and often complex, and there is 2. In reality, the channels used are very varied and often complex, and there is much overlapping.

much overlapping.

Channel 1: When a manufacturer sells direct

Channel 1: When a manufacturer sells direct to the consumer to the consumer MM a n ua n u ff a c ta c t u ru r e r e r C o n s u m e r C o n s u m e r e . g . e . g . VV e ge g e te t a ba b ll e s ae s a tt p r o d u p r o d u c e r s ’ c e r s ’ mm a r k e ta r k e t a n a n d md m a d ea d e -- tt o - o ro - o r d e r d e r f u r n i t u r e f u r n i t u r e C o n s u m e r C o n s u m e r e . e . g . g . BB rr e ae a d a nd a n dd rr e a d y me a d y m a d ea d e f u r n i t u r e f u r n i t u r e C o n s u m e r C o n s u m e r ee .. gg . . FF ii s hs h , l, loo c ac a ll ll yy mm a n ua n u ff a c ta c t u ru r e de d h o u s e h o l d h o u s e h o l d ii tt e me m ss C o n s u m e r C o n s u m e r e . g . e . g . II mm p op o rr tt e d e d c a r s ,c a r s , c o s m c o s m e te t ii c sc s RR ee tt aa ii ll ee rr RR ee tt aa ii ll ee r r _{RR ee tt aa ii ll ee r}_r WW h o lh o l e s a le s a l e r e r S o lS o l e Ae A g e n tg e n t 11 ₂₂ ₃₃ ₄₄

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Commerce

Commerce –– Students’ GuideStudents’ Guide

Department of Business and Computing Department of Business and Computing

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1. ThThis is ococcucurs rs whwhen en cucuststomomererss post orders for post orders for booksbooks or magazines direct or magazines direct to theto the publishers who then send them their orders direct as in

publishers who then send them their orders direct as in mail order or e-commerce.mail order or e-commerce. This ensures the publisher of selling to as many people as possible, including This ensures the publisher of selling to as many people as possible, including those who live far away. In this way, they increase their sales. Consumers, too, those who live far away. In this way, they increase their sales. Consumers, too, benefit since they are assured of

benefit since they are assured of getting the latest issue or getting the latest issue or publication earlypublication early.. 2

2.. It It aalslso oo occccururs ws whehenn something is made specially something is made specially for a customer such as a for a customer such as a suitsuit or made-to-order furniture. Consumers who demand individuality in design for or made-to-order furniture. Consumers who demand individuality in design for such personal effects normally have to pay more than what they have to pay for such personal effects normally have to pay more than what they have to pay for the same type of good which is

the same type of good which is mass-produced.mass-produced. 3. It also occurs in the case of

3. It also occurs in the case of expensive and highly specialized goodsexpensive and highly specialized goods which arewhich are purchased only occasionally by governments or big private companies. Examples purchased only occasionally by governments or big private companies. Examples of these kinds of goods are aero planes, ships, railway rolling stock, and the like. of these kinds of goods are aero planes, ships, railway rolling stock, and the like. Buyers prefer to go direct to the manufacturers so that they may be able to Buyers prefer to go direct to the manufacturers so that they may be able to discuss their individual requirements as well as the

discuss their individual requirements as well as the terms of purchase.terms of purchase. 4. This channel of distribution, however, is not suitable for

4. This channel of distribution, however, is not suitable for all kinds of goods.all kinds of goods.

Channel 2: When a manufacturer sells to the retailers who in turn sell to the Channel 2: When a manufacturer sells to the retailers who in turn sell to the consumers

consumers

1. Most of these retailers are large stores that have the financial resources to buy 1. Most of these retailers are large stores that have the financial resources to buy in

in bulk bulk direct from the manufacturers. The main advantage of bulk buying is thedirect from the manufacturers. The main advantage of bulk buying is the large discounts given that enable these retailers to compete successfully with the large discounts given that enable these retailers to compete successfully with the small retailers in terms of ability to offer a greater variety of goods at competitive small retailers in terms of ability to offer a greater variety of goods at competitive prices.

prices.

2. In many cases, manufacturers open their own

2. In many cases, manufacturers open their own retail shops,retail shops, for example, thosefor example, those selling footwear and

selling footwear and medicine. These manufacturers have resources large enoughmedicine. These manufacturers have resources large enough to open retail outlets

to open retail outlets of their own of their own throughout the countrythroughout the country..

3. Sometimes, the retailers may be 'tied' to the manufacturer. For example, petrol 3. Sometimes, the retailers may be 'tied' to the manufacturer. For example, petrol stations sell only one brand of petrol.

stations sell only one brand of petrol.

Ch

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Wholesale Trade Wholesale Trade

merchant who in turn sells in smaller quantities to retailers (shops), who in merchant who in turn sells in smaller quantities to retailers (shops), who in turn sell to the

turn sell to the consumersconsumers

1.

1. ThThis is occoccurs urs whewhen n proproducducers ers thethemsemselvelves s are are unaunable ble to to marmarket ket the the excexcessess goods themselves because of financial constraints or the lack of access to widely goods themselves because of financial constraints or the lack of access to widely dispersed markets due to a lack

dispersed markets due to a lack of contacts, commercial know-how and the like of contacts, commercial know-how and the like or or owing to the fact that it is just not commercially profitable for the producers to do owing to the fact that it is just not commercially profitable for the producers to do so themselves. This is true of most

so themselves. This is true of most rural producerural produce like fish, paddy, vegetables,like fish, paddy, vegetables, eggs, poultry, etc. which are easily perishable. These are often sold to dealers eggs, poultry, etc. which are easily perishable. These are often sold to dealers (wholesalers) who then pack them properly and transport them quickly to the big (wholesalers) who then pack them properly and transport them quickly to the big towns and cities either in the same country or overseas, where they are sold to towns and cities either in the same country or overseas, where they are sold to various retailers, who in turn sell them to the consumers.

various retailers, who in turn sell them to the consumers. 2.

2. LocaLocally lly manumanufactufactured red goodgoodss liklike e ordordinainary ry houhousehsehold old essessententialials s whiwhich ch areare stocked by small retailers are often distributed in this way since the retailers buy in stocked by small retailers are often distributed in this way since the retailers buy in too small a quantity to make it viable for the manufacturer to sell direct

too small a quantity to make it viable for the manufacturer to sell direct to them.to them. 3. This method of distribution is especially important where the demand for the 3. This method of distribution is especially important where the demand for the product is seasonal but production takes place throughout the year, e.g. fireworks product is seasonal but production takes place throughout the year, e.g. fireworks and Christmas cards. It is the same if the demand for the product is fairly even and Christmas cards. It is the same if the demand for the product is fairly even throughout the year, but output is concentrated during specific periods of the year, throughout the year, but output is concentrated during specific periods of the year, e.g. paddy.

e.g. paddy.

In such cases, the wholesaler's function of acting like a reservoir in order to In such cases, the wholesaler's function of acting like a reservoir in order to balance demand and supply becomes very

balance demand and supply becomes very important.important. 4. Goods which are sold in this way become

4. Goods which are sold in this way become more expensivemore expensive because of the costbecause of the cost of

of didiststribribututioion n anand d prprofofit it mamargrginins s rereququirired ed by by ththe e whwhololesesalaler er anand d reretataililerer.. Moreover, consumers have no direct contact with manufacturers or producers. Moreover, consumers have no direct contact with manufacturers or producers. However, consumers are assured of a

However, consumers are assured of a wide variety of goodswide variety of goods produced by manyproduced by many producers.

producers.

5. The producer is free to devote all his attention and resources to the actual work 5. The producer is free to devote all his attention and resources to the actual work of producing the goods since the

of producing the goods since the marketing aspect marketing aspect of his goods is already in theof his goods is already in the hands of the wholesaler. At the same time, the producer is assured that his goods hands of the wholesaler. At the same time, the producer is assured that his goods are marketed over a

are marketed over a wide geographical area.wide geographical area. 6. The retailer needs

6. The retailer needs little capital little capital as he needs to maintain only a small stock. Heas he needs to maintain only a small stock. He does not need to keep large stocks because it is easy for him to get new and, does not need to keep large stocks because it is easy for him to get new and, hence, fresher stocks from his supplier (

hence, fresher stocks from his supplier (wholesaler) once his stocks are depleted.wholesaler) once his stocks are depleted. 7.

7. GeneGeneral ral wholewholesalesalersrs nonormrmalally ly ststocock k a a wiwide de rarangnge e of of gogoodods s anand d neneed ed aa sub

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Commerce

advertising and to pay the salaries of their salesmen. These tend to operate on a advertising and to pay the salaries of their salesmen. These tend to operate on a national or regional basis.

national or regional basis. Specialist wholesalers,

Specialist wholesalers, however, deal mainly in a particular trade in a particular however, deal mainly in a particular trade in a particular area, for example, a wholesaler of building materials, in fruit, in

area, for example, a wholesaler of building materials, in fruit, in vegetables, etc.vegetables, etc. 8.

8. SoSomemetitimemes, s, a a whwhololesesalale e memercrchahant nt mamay y imimpoport rt didirerectctly ly frfrom om an an ovovererseseasas supplier

supplier. Like the wholesaler, he then sells it . Like the wholesaler, he then sells it to the retailers in to the retailers in smaller quantities.smaller quantities.

Channel 4: When an overseas manufacturer appoints a sole

Channel 4: When an overseas manufacturer appoints a sole agentagent

1. This is done in the home market to manage the sale and distribution of goods 1. This is done in the home market to manage the sale and distribution of goods as well as to provide after-sale services. The sole agent is responsible for getting as well as to provide after-sale services. The sole agent is responsible for getting reliable retailers to

reliable retailers to market the goods throughout the country. Such sole agents aremarket the goods throughout the country. Such sole agents are appointed to sell imported cars,

appointed to sell imported cars, cosmetics and electrical goods.cosmetics and electrical goods.

FUNCTIONS OF THE

FUNCTIONS OF THE WHOLESALERWHOLESALER 1. Bulk buying

1. Bulk buying

1. The wholesaler buys goods in bulk from the producers or manufacturers in the 1. The wholesaler buys goods in bulk from the producers or manufacturers in the hope that he will be able to resell t

hope that he will be able to resell them at a profit.hem at a profit.

2. Sometimes, he may import the goods from foreign countries, but he usually 2. Sometimes, he may import the goods from foreign countries, but he usually buy

buys s frofrom m imimporporterters s or or thetheir ir brobrokekers, rs, or or frofrom m cocommmmissission ion agagentents s actacting ing for for overseas exporters.

overseas exporters.

3. A wholesaler has specialist buyers who are in very close contact with the 3. A wholesaler has specialist buyers who are in very close contact with the market and who know the various sources of supply.

market and who know the various sources of supply. 2. Risk bearing

2. Risk bearing 1.

1. ThThe e whwhololesesalaler er mamakekes s hihis s pupurcrchahaseses s babasesed d on on upup-t-to-o-dadate te anand d rerelialiablblee in

infoformrmatatioion n on on ththe e lilikekely ly tataststes es anand d prprefefererenenceces s of of coconsnsumumerers. s. He He buybuys s inin advance of demand.

advance of demand. 2. He will make

2. He will make huge profits if he huge profits if he anticipates demand correctlyanticipates demand correctly..

3. He bears the risk of loss in cases where anticipated demand for his purchases 3. He bears the risk of loss in cases where anticipated demand for his purchases does not materialize, if products are damaged, spoilt or stolen, or if retailers does not materialize, if products are damaged, spoilt or stolen, or if retailers default. In case tastes change, he may even have to sell off the goods at a loss. default. In case tastes change, he may even have to sell off the goods at a loss. Prices may fall or goods may go out of fashion before they can be passed on to Prices may fall or goods may go out of fashion before they can be passed on to the consumers.

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3. Warehousing 3. Warehousing

1. The wholesaler stores the goods which are purchased in advance before they 1. The wholesaler stores the goods which are purchased in advance before they are distributed to the retailers. This would even out the flow of goods. In times of are distributed to the retailers. This would even out the flow of goods. In times of glut, they can be kept off the market, and in times of shortage, released. This glut, they can be kept off the market, and in times of shortage, released. This would prevent severe fluctuations in prices.

would prevent severe fluctuations in prices.

2. In some trades, the wholesaler grades, sorts, packs or prepares the goods for 2. In some trades, the wholesaler grades, sorts, packs or prepares the goods for sale. He may sell under

sale. He may sell under his own brand name.his own brand name.

4. Breaking bulk 4. Breaking bulk

1. The wholesaler breaks bulk or divides

1. The wholesaler breaks bulk or divides the goods bought into smaller quantities.the goods bought into smaller quantities. 2. He sells the goods in smaller quantities to various retailers.

2. He sells the goods in smaller quantities to various retailers.

5. Transportation 5. Transportation

1. The wholesaler provides transport for goods from the suppliers to suitable 1. The wholesaler provides transport for goods from the suppliers to suitable depots in the various cities, and from there, to the retailers' shops.

depots in the various cities, and from there, to the retailers' shops.

2. If retailers were to buy from a cash-and-carry wholesaler, they have to provide 2. If retailers were to buy from a cash-and-carry wholesaler, they have to provide their own transport.

their own transport.

6. Finance 6. Finance

1. The wholesaler finances the retailer b

1. The wholesaler finances the retailer b y allowing him extended credit.y allowing him extended credit. 2. He finances the producer indirectl

2. He finances the producer indirectly by paying him promptlyy by paying him promptly..

7. Information 7. Information 1.

1. The wholeThe wholesalsaler er actacts s as as a a lialiaisoison n betbetweeween n the the retretailailers and ers and proproducducers ers byby informing producers of the retailers' reactions to their goods, and acquainting informing producers of the retailers' reactions to their goods, and acquainting retailers with new products and other

retailers with new products and other developments in the market.developments in the market.

TYPES OF WHOLESALERS: TYPES OF WHOLESALERS: General Wholesaler:

General Wholesaler:

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• They operate on national and regional They operate on national and regional basis.basis. •

• They stock a large variety of goods in their warehouses and thus needThey stock a large variety of goods in their warehouses and thus need

large capital. large capital.

•

• They advertise nationally.They advertise nationally. •

• ThThey ey ememplploy oy sasalelesmsmen en to to obobtatain in orordeders rs frofrom m reretataililerers s anand d pay pay ththemem

salaries. salaries.

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Commerce

Department of Business and Computing Department of Business and Computing Specialist Wholesaler:

Specialist Wholesaler:

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• They restrict their activities to a particular tThey restrict their activities to a particular trade and to a particular area.rade and to a particular area. •

• They offer credit facilities They offer credit facilities and delivery service.and delivery service. •

• Examples are wholesale fruit and vegetables markets.Examples are wholesale fruit and vegetables markets.

Cash-and-Carry Wholesaler: Cash-and-Carry Wholesaler:

•

• They do not allow credit facilities.They do not allow credit facilities. •

• They do not provide delivery They do not provide delivery services.services. •

• They sometimes sell even to the They sometimes sell even to the general public.general public. •

• They sell mostly They sell mostly low-priced goods, which sell low-priced goods, which sell quicklyquickly..

TRENDS IN WHOLESALING TRENDS IN WHOLESALING

The current retail trade is characterized by an increasing number of large-scale The current retail trade is characterized by an increasing number of large-scale retailers being set up in the traditional market made up largely of small-scale retailers being set up in the traditional market made up largely of small-scale retailers. The wholesale trade, threatened as such by these developments, has retailers. The wholesale trade, threatened as such by these developments, has had to undergo certain changes in recent years in order to survive. Today the had to undergo certain changes in recent years in order to survive. Today the wholesale trade is characterized not only by the independent wholesaler, but by wholesale trade is characterized not only by the independent wholesaler, but by the cash and carry wholesaler as well

the cash and carry wholesaler as well as the voluntary chain.as the voluntary chain.

Voluntary chains Voluntary chains

Groups of independent retailers or shopkeepers who join with wholesalers to gain Groups of independent retailers or shopkeepers who join with wholesalers to gain the benefits of bulk buying. When ordering goods, all the members put their the benefits of bulk buying. When ordering goods, all the members put their orders together through the wholesaler who is also a member. The wholesaler is orders together through the wholesaler who is also a member. The wholesaler is then able to obtain goods in bulk direct from the producer at a discount.

then able to obtain goods in bulk direct from the producer at a discount.

It helps small-scale retailers to combat the competition from Large - scale retailers It helps small-scale retailers to combat the competition from Large - scale retailers e.g. supermarkets. They are able to offer goods at competitive prices give special e.g. supermarkets. They are able to offer goods at competitive prices give special offers and attract more customers.

offers and attract more customers.

Voluntary chains are found mostly in the grocery trade e.g. SPAR, Square Deal, Voluntary chains are found mostly in the grocery trade e.g. SPAR, Square Deal, and Wavy Line

and Wavy Line

They are normally organised via the wholesaler. The group will undertake national They are normally organised via the wholesaler. The group will undertake national advertising on behalf of the group. It may provide finance and shop fitting for retail advertising on behalf of the group. It may provide finance and shop fitting for retail me

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delivered direct to the

delivered direct to the retailer. retailer. Advice on pricing, display and stock may be Advice on pricing, display and stock may be given.given. Cash-and-Carry Wholesaler:

Cash-and-Carry Wholesaler:

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 They do not allow credit facilities.They do not allow credit facilities. 

 They do not provide delivery They do not provide delivery services.services. 

 They sometimes sell even to the They sometimes sell even to the general public.general public. 

 They sell mostly They sell mostly low-priced goods, which sell low-priced goods, which sell quicklyquickly..

INST

INSTANCES WHERE THE ANCES WHERE THE WHOLESALER IS WHOLESALER IS STILL NEEDED:STILL NEEDED:

•

• In foreign trade, the wholesaler has the experience and contact that anIn foreign trade, the wholesaler has the experience and contact that an

overseas firm cannot do without. overseas firm cannot do without.

•

• The wholesaler is still important where the producers are still small-scaleThe wholesaler is still important where the producers are still small-scale

producers. producers.

•

• The wholesaler is important where production is seasonal and irregular inThe wholesaler is important where production is seasonal and irregular in

quantity. quantity.

•

• The small retailers who dominate the market do not have large finance toThe small retailers who dominate the market do not have large finance to

buy directly from the manufacturers. Hence wholesalers are

buy directly from the manufacturers. Hence wholesalers are still needed.still needed.

DECLINE OR ELIMINATION OF THE WHOLESALER: DECLINE OR ELIMINATION OF THE WHOLESALER:

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• Manufacturers, nowadays, produce branded goods, which are pre-packedManufacturers, nowadays, produce branded goods, which are pre-packed

into convenient sizes. into convenient sizes.

•

• Through advertisements, manufacturers are able to create and maintain aThrough advertisements, manufacturers are able to create and maintain a

market for their own products. market for their own products.

•

• The establishment of large retailers like multiple stores and departmentalThe establishment of large retailers like multiple stores and departmental

stores has the finance to

stores has the finance to buy goods directly from the buy goods directly from the manufacturers.manufacturers.

•

• The improvement in transport and communication has made it faster andThe improvement in transport and communication has made it faster and

ea

easisier er fofor r ththe e mamanunufafactctururer er to to dedelivliver er gogoodods s anand d cocontntacact t ththe e wiwidedelyly scattered retailers.

scattered retailers.

•

• Some manufacturers open their own retail shops and sell goods directly toSome manufacturers open their own retail shops and sell goods directly to

the consumers. the consumers.

•

• Manufacturers have decided to sell goods directly to the retailers as theManufacturers have decided to sell goods directly to the retailers as the

retailers would sell the goods faster than the wholesaler would. retailers would sell the goods faster than the wholesaler would.

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Commerce

HOW THE WHOLESALER SERVES THE HOW THE WHOLESALER SERVES THE

MANUFACTURER, THE RETAILER AND THE CONSUMER MANUFACTURER, THE RETAILER AND THE CONSUMER

By

By cacarrrryyining g ouout t ththe e ababovove e fufuncnctitionons, s, ththe e whwhololesesalaler er nonot t ononly ly hehelplps s ththee manufacturer or primary producer, but also the retailer and the

manufacturer or primary producer, but also the retailer and the consumer as well.consumer as well.

Services to the manufacturer Services to the manufacturer Low storage expenses

Low storage expenses

1. The wholesaler absorbs the goods produced by the manufacturer as they are 1. The wholesaler absorbs the goods produced by the manufacturer as they are being made. The manufacturer is, therefore, relieved from paying the expenses of being made. The manufacturer is, therefore, relieved from paying the expenses of storage -that is, rent, insurance, wages, utilities as well as the loss of interest due storage -that is, rent, insurance, wages, utilities as well as the loss of interest due to money capital tied up in

to money capital tied up in stocks.stocks. 2.

2. ThThe e mamanufnufactactureurer r of of googoods ds in in seaseasonsonal al demdemand and susuch ch as as winwinter ter cloclothithing,ng, greeting cards for various festivals, etc. is able to continue production throughout greeting cards for various festivals, etc. is able to continue production throughout the year as the wholesalers are willing to absorb the products when they are the year as the wholesalers are willing to absorb the products when they are being produced. No manufacturer can survive if his factor

being produced. No manufacturer can survive if his factor y is forced to close downy is forced to close down for a few months in a year for there are costs to be met even if there is no for a few months in a year for there are costs to be met even if there is no production. These costs include depreciation on plant and equipment, interest on production. These costs include depreciation on plant and equipment, interest on loans and wages of administrative staff.

loans and wages of administrative staff. 3. All goods are produced

3. All goods are produced beforebefore there are orders for them from the retailers. Thethere are orders for them from the retailers. The manufacturer is relieved of the risk of loss should the anticipated demand for manufacturer is relieved of the risk of loss should the anticipated demand for these goods from consumers fail to materialize. It is the wholesaler who has these goods from consumers fail to materialize. It is the wholesaler who has bought the goods in bulk who will have to bear the risk of

bought the goods in bulk who will have to bear the risk of loss.loss.

Reduced cash flow problems Reduced cash flow problems

1. By paying the manufacturer promptly, the wholesaler reduces the amount of 1. By paying the manufacturer promptly, the wholesaler reduces the amount of working capital required by the manufacturer and allows the latter to continue working capital required by the manufacturer and allows the latter to continue production smoothly. The manufacturer will, therefore, have a regular inflow of production smoothly. The manufacturer will, therefore, have a regular inflow of cash after selling off each batch of production. This reduces the amount he has to cash after selling off each batch of production. This reduces the amount he has to borrow.

borrow.

Low marketing cost Low marketing cost

1. Should the manufacturer undertake to market the goods himself {he will incur a 1. Should the manufacturer undertake to market the goods himself {he will incur a

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lot of expenses for transport, advertising as well as administration since it is lot of expenses for transport, advertising as well as administration since it is conceivable that some of the smaller retailers

conceivable that some of the smaller retailers would prefer credit.would prefer credit.

2. However, if he were to sell through the wholesalers, he would deal with only a 2. However, if he were to sell through the wholesalers, he would deal with only a few major customers who buy in bulk and who can pay him cash fairly promptly. few major customers who buy in bulk and who can pay him cash fairly promptly. This would reduce his marketing costs.

This would reduce his marketing costs.

Services to the retailer Services to the retailer

Purchase of small quantities Purchase of small quantities

1. A wholesaler's willingness to sell in small quantities is a boon to a small retailer 1. A wholesaler's willingness to sell in small quantities is a boon to a small retailer who only places small orders and is unable to get his stock directly from the who only places small orders and is unable to get his stock directly from the ma

manunufafactctururer er as as ththe e lalattetter r ononly ly sesells lls in in bubulklk. . TTraransnspoportrtining g orordeders rs of of smsmalalll quantities all over the

quantities all over the country would be costly for country would be costly for the manufacturerthe manufacturer..

Reduced cash flow problems Reduced cash flow problems 1.

1. WhWhololesesalaler er prprovovidides es crcrededit it to to a a reretataililer er anand d rereduduceces s ththe e lalatttterer's 's cacapipitatall requirements. A producer is often not willing to grant credit to a retailer since it requirements. A producer is often not willing to grant credit to a retailer since it would increase his working capital.

would increase his working capital.

2. As a result, the retailers have time to sell the goods before they have to pay for 2. As a result, the retailers have time to sell the goods before they have to pay for them.

them.

Low goods preparation cost Low goods preparation cost 1. A

1. A wholesaler simplifies a retailer's work since the wholesaler simplifies a retailer's work since the goods are already graded andgoods are already graded and repacked into convenient quantities and sizes.

repacked into convenient quantities and sizes.

Low storage expenses Low storage expenses

1. A retailer is always assured of delivery of fresh stocks from the wholesaler's 1. A retailer is always assured of delivery of fresh stocks from the wholesaler's warehouse if he runs short. This reduces the amount of stock he needs to hold at warehouse if he runs short. This reduces the amount of stock he needs to hold at a time,

a time, henchence e savinsaving on g on costcosts s of storage, insuranof storage, insurance and ce and risk, in risk, in case demacase demand isnd is below expectations.

below expectations.

Wide choice of related products Wide choice of related products

1. A wholesaler offers a variety of goods made by various manufacturers, both 1. A wholesaler offers a variety of goods made by various manufacturers, both local and abroad. This saves the retailer time which would otherwise have to be local and abroad. This saves the retailer time which would otherwise have to be spent in dealing with each manufacturer individually. The retailer is also kept spent in dealing with each manufacturer individually. The retailer is also kept up-to

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Commerce

Department of Business and Computing Department of Business and Computing wholesaler is much less likely to

wholesaler is much less likely to be biased than that be biased than that supplied by the manufacturer.supplied by the manufacturer.

Low wholesale prices Low wholesale prices

1. A cash-and-carry wholesaler who is a wholesale 'supermarket' offers retailer 1. A cash-and-carry wholesaler who is a wholesale 'supermarket' offers retailer goods at cut prices although the latter may have to arrange for his own transport. goods at cut prices although the latter may have to arrange for his own transport. Lower prices are possible due to savings in cost which are a result of:

Lower prices are possible due to savings in cost which are a result of: (a) No credit facility - sales are on

(a) No credit facility - sales are on 'cash' basis'cash' basis (b) No delivery service

(b) No delivery service

(c) Self-service - no need to employ huge staff (c) Self-service - no need to employ huge staff (d) Goods stocked are

(d) Goods stocked are those that sell those that sell quicklyquickly..

Services to the final

Services to the final consumer consumer

Regular supply at steady prices Regular supply at steady prices

1. Consumers are assured of a regular Supply of goods throughout the year at 1. Consumers are assured of a regular Supply of goods throughout the year at steady prices since the wholesaler releases the

steady prices since the wholesaler releases the goods when required.goods when required.

2. This is particularly important for goods which are produced seasonally such as 2. This is particularly important for goods which are produced seasonally such as rice but whose demand is regular.

rice but whose demand is regular.

3. This is because a wholesaler buys goods when they are plentiful, and hence 3. This is because a wholesaler buys goods when they are plentiful, and hence prices are comparatively low, and releases them in times of shortage without prices are comparatively low, and releases them in times of shortage without raising prices unduly.

raising prices unduly.

Convenient shopping and wider choices Convenient shopping and wider choices

1. The wholesaler enables the small retailers to compete with the large retailers, 1. The wholesaler enables the small retailers to compete with the large retailers, especially in suburban areas where rentals are lower than in the city centre. Thus, especially in suburban areas where rentals are lower than in the city centre. Thus, consumers are assured of getting the goods they want from the retailer nearest to consumers are assured of getting the goods they want from the retailer nearest to their homes. Usually

their homes. Usually, the large , the large retailer is situated in retailer is situated in the city centre.the city centre. 2. The consumer is assured of a

2. The consumer is assured of a wider choice of goods even wider choice of goods even at the smaller shops,at the smaller shops, since the retailers get their supplies from a number of wholesalers, who would in since the retailers get their supplies from a number of wholesalers, who would in turn obtain their

turn obtain their supplies from many producers.supplies from many producers.

3. Since wholesalers encourage the setting up of a number of smaller retailers, 3. Since wholesalers encourage the setting up of a number of smaller retailers, consumers have a wider choice of shops.

consumers have a wider choice of shops.

Consumer demand Consumer demand

1. Since the wholesaler is in closer contact with the public through feedback from 1. Since the wholesaler is in closer contact with the public through feedback from retai

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reaches the manufacturer, with whom he too has close contact. In this way, reaches the manufacturer, with whom he too has close contact. In this way, products can be improved in line

products can be improved in line with consumer demand.with consumer demand.

INTERMEDIARIES INTERMEDIARIES Merchants

Merchants

1. These middlemen are principals who trade on their own account and therefore 1. These middlemen are principals who trade on their own account and therefore ow

own n ththe e gogoodods s anand d eaearn rn prprofofits its frofrom m ththeieir r trtradadining g acactivtivitiitieses. . ExExpoporterters rs anandd importers are the merchants in foreign trade while the wholesalers are merchants importers are the merchants in foreign trade while the wholesalers are merchants engaged in home trade.

engaged in home trade.

Forwarding agents Forwarding agents

Forwarding agents are middlemen in international trade who specialise in moving Forwarding agents are middlemen in international trade who specialise in moving goods from country to country. They arrange transport, documentation, customs goods from country to country. They arrange transport, documentation, customs clearance, insurance, storage so that the owner of the goods does not have to do clearance, insurance, storage so that the owner of the goods does not have to do this e.g. DHL, FED EX.

this e.g. DHL, FED EX.

Mercantile agents Mercantile agents

1. These middlemen act on behalf of their principals in finding would-be sellers 1. These middlemen act on behalf of their principals in finding would-be sellers and would-be buyers of the goods and services of their principals. They do not and would-be buyers of the goods and services of their principals. They do not own the goods and services. They earn commissions for their services. Some own the goods and services. They earn commissions for their services. Some mercantile agents act as 'brokers' and

mercantile agents act as 'brokers' and some as 'factors.some as 'factors. Broker

Broker

A broker is a middleman who: A broker is a middleman who:

•

• Finds buyers for the sellerFinds buyers for the seller.. •

• Does not take possession of the goods.Does not take possession of the goods. •

• Cannot sell in his own name.Cannot sell in his own name. •

• Cannot sell at his own price.Cannot sell at his own price. •

• Receives commission for his services.Receives commission for his services.

Factor Factor

A factor is a middleman who: A factor is a middleman who:

•

• Finds buyers for the sellerFinds buyers for the seller.. •

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Commerce

•

• Can sell in his own name.Can sell in his own name. •

• Can sell at his own price.Can sell at his own price. •

• Makes a profit out of sale.Makes a profit out of sale.

Del Credere Agent Del Credere Agent

A del credere agent is a middleman who: A del credere agent is a middleman who:

•

• Finds buyers for the sellers.Finds buyers for the sellers. •

• Takes possession of the goods.Takes possession of the goods. •

• Guarantees to sell all the goods.Guarantees to sell all the goods. •

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