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Contents
Introduction.................................................................................................................................3
Issues of Concern for Wholesalers................................................................................................4
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Introduction
Wholesaling is a distribution channel function where one organization buys products from
supplying firms with the primary intention of redistributing to other organizations (but, in
general, not to the final consumer). A wholesaler is an organization providing the necessary
means to: 1) allow suppliers (e.g., manufacturers) to reach organizational buyers (e.g.,
retailers, business buyers), and 2) allow certain business buyers to purchase products which
they may not be able to otherwise purchase
While many large retailers and even manufacturers have centralized facilities and carry out
the same tasks as wholesalers, they are not classified as wholesalers since these relationships
only involve one other party, the buyer. Thus, a distinguishing characteristic of wholesalers is
they offer distribution activities for both a supplying party and for a purchasing party. For the
discussion of wholesalers, we will primarily focus on wholesalers who sell to other resellers
such as retailers.
The benefits wholesalers offer to members of the channel can be significant, though specific
benefits vary by type of wholesaler. Yet there are two particular benefits – one for suppliers
and one for retailers - that are common to most wholesale operations.
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Issues of Concern for Wholesalers
The wholesale industry has served an important role in the distribution process for well over 100
years, yet the challenges they face today are raising the stakes as many wholesalers fight to
maintain their market position. Some of the issues facing today’s wholesalers include:
Facility Location – Wholesalers who are heavily involved in product shipment may
spend considerable time evaluating sites for locating facilities. For organizations
needing very large facilities, the decision as to where to locate becomes more
difficult and more expensive the closer the location is to major metropolitan areas. In
fact, land costs in some regions of the world have risen so high that utilizing this
space for wholesaling operations may not be feasible. In addition to land costs,
facility location is also affected by access to adequate transportation, such as roads,
seaports, airports and rail terminals. Areas with available land often lack the
infrastructure needed to run wholesale facilities unless expensive and time-
consuming improvements (e.g., build highway, extend rail line, etc) are made.
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Offering Non-Product Assistance – Wholesalers are finding that offering products
is not the only thing of interest to their buyers. Many customers also want
wholesalers to offer additional value-added services such as employee training (e.g.,
teach selling skills), promotional support (e.g., financial support for advertising), and
assistance in managing their operations (e.g., building an online store). Keeping
pace with the services in demand by their customers requires constant research and
communication with customers.
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Ways to Categorize Wholesalers
Wholesalers can be grouped together on the basis of certain operational
characteristics. Wholesale operations can be based on four marketing decisions:
1. Products Carried
2. Promotional Activities
3. Distribution Method
5. Product Ownership
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Wholesale Categories: Promotional Activities
Wholesalers can be separated based on the importance promotion plays in generating
demand for products handled by the wholesaler. Two basic categories exist:
Extensive Promotion – The main job of some wholesalers is to actively locate buyers.
This occurs most often where a wholesaler is hired to find buyers for a supplier’s
products or where the wholesaler is very aggressive in finding new customers for their
business. Under these arrangements the most common promotional activity is personal
selling through a sales force, though advertising may also be used.
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Wholesale Categories: Distribution
Wholesalers have distribution methods similar to those of retailers in that customers may
or may not be able to physically visit the wholesaler’s location to acquire their purchase.
This category is separated based on whether or not a stationary location exists from which
the wholesaler conducts the physical movement of products.
Customer Accessible
–At certain wholesaler locations buyers can shop at the
facility. In fact, retail warehouse clubs, such as Costco and Sam’s Club, also
function as wholesalers for qualifying businesses. In addition to selecting their
orders, buyers are responsible for making their own arrangements to transport
their purchases.
product delivery.
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Mobile – Several specialized wholesalers transport products to the
customer’s location using vans or trucks. Buyers then have the ability to
purchase product by either walking through the mobile facility or ordering
from the wholesaler who then selects the items from the vehicle.
Full-Service – Wholesalers in this category mainly sell to the retail industry, and in
most cases, require a strong, long-term retailer-wholesaler relationship be
established. In addition to basic distribution services, such as providing access to an
assortment of products and furnishing delivery, these wholesalers also offer
customers additional services that aid retail store operations including offering
assistance with: in-store merchandising; retail site location decisions (e.g., find best
geographic location for a new store); store design and construction; back-end
operations (e.g., payroll services); financial support; and many more.
Do Take Title – Wholesalers taking title own the products they purchase.
Do Not Take Title – Wholesalers who do not take title are focused on activities
that bring buyers and sellers together. Often these wholesalers never physically
handle products.
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Considering the criteria by which wholesalers can be categorized, it is not surprising many
different wholesale formats exist. Below we discuss ten wholesale formats. While many of
these wholesalers also have an online presence, we do not distinguish an "e-wholesaler" as a
separate format the reason? While most wholesalers do operate from a brick-and-mortar
facility, few wholesale operations permit customer shopping at their facility. Thus, the nature of
industry for many years has been to have customers use communication tools (e.g., phone,
fax) to place orders. With the wholesale industry, the Internet simply serves as another
communication option rather than a significantly different distribution channel.
General Merchandise – These wholesalers offer broad but shallow product lines
that are mostly of interest to retailers carrying a wide assortment of products, such
as convenience stores, variety stores (e.g., those offering closeout products), and
novelty retailers. Since these wholesalers offer such a wide range of products, their
knowledge of individual products may not be strong.
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Wholesale Formats
The Different wholesale formats have been described below:
Truck–As the name suggests, truck wholesaling operations are primarily run out of a
truck that is stocked with products. These wholesalers often have assigned geographic
territories where they regularly visit buyer’s locations. In most cases these
wholesalers
offer specialty product lines with many being found in the retail food industry and the
industrial markets.
Rack Jobber–Similar to truck wholesalers, the rack jobber also sells from a truck.
However, the main difference is that rack jobbers are assigned and manage space (i.e.,
racks) within a retailer’s store. The rack jobber is then responsible for maintaining
inventory and may even handle other marketing duties such as setting product price.
This form of wholesaling is most prominent with magazines, candy, bakery, and
health-and-beauty products. In some trades the name rack jobber is being replaced
by
the name service merchandiser.
Broker–A far less obvious type of wholesaler is the broker, who is responsible for
bringing buyers and sellers together. However, brokers do not take ownership of
products and often never handle the product. Brokers are paid based on a pre-
negotiated percentage of the sale (i.e., commission) by the side that hires their
services. In most cases the relationship that develops between the broker and the
buyer and seller is short-term and only lasts through the purchase. Brokers can be
found in the food industry, importing/exporting and real estate.
Agent–Similar to brokers, agents also bring buyers and seller together though they
tend to work for clients for an extended period of time. As with brokers, agents
generally are paid on commission. A common type of agent is the Manufacturers’
Representative who essentially assumes the role of a sales force for a client.
Manufacturers’ Reps may handle several non-competing product lines at the same
time and during a single meeting with a perspective buyer may discuss many products.
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Wholesaler Summary Chart
Below we summarize each wholesale format by using the five categorization characteristics.
The characteristics identified for each format should be viewed as the "most likely" case for
that format and are not necessarily representative of all wholesalers that fall into this format.
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Emerging Issues in Wholesaling: Case Study
The COO and CFO of a large telecoms carrier are concerned by falling voice margins and
more specifically the ability for the firm’s wholesale business to maximize sales and curb
revenue loss. They agree to conduct an operational review to get some answers. The
discussion covers areas such as managing the financial risks of trading decisions, using
capacity to improve profitability, measuring and controlling traffic through the network,
ensuring quality of service commitments, and identifying different types of revenue leakage.
As the discussion ranges from the impact of converged and next generation services to the
rapid growth in the number of partner agreements, the scale of the task becomes apparent.
This is a situation in which many carriers find themselves. Inter-carrier billing represents a
significant cost of providing service to customers and equates to a large percentage of
revenues. It is essential that service providers adopt best practices in interconnect billing
and wholesale business management to future-proof operations, especially as all the
challenges of managing revenue are greatly compounded by the complex nature and
increasing volumes involved in inter-carrier billing, particularly in the new world of IP-
enabled services and digital content.
The COO and CFO need to find the answers and solve the issue of optimising their wholesale
operation. The ideal approach would be to gain insight from their management team as to what
the relationships between supplier agreements, revenue management, billing integrity and
process efficiencies are before getting into the technicalities about the flow of CDR information
from network elements through OSS and BSS. ‘Revenue Assurance’ process audits and
business process re-engineering are common responses. Such approaches are time
consuming, but do cover a vast range of a telecoms company’s operation, from product design
and credit checks through ordering, provisioning, mediation, billing and settlement, etc. This
requires database audits, statistical analysis, file analysis and monitoring of business critical
processes. While revenue assurance audits and BPRE initiatives are worthwhile activities, they
are a waste of time if the end result does not improve wholesale business processes, ensuring
that they work optimally and provide a strategic edge.
Let us return to the dilemma faced by our imaginary COO and CFO. After an in-depth,
cross-functional review of wholesale business operations, the COO documents his findings:
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The key business issues:
3. The existing interconnect billing system cannot deal with emerging accounting
and revenue share models. This includes handling the differences between IP-
based and traditional services and effectively managing, rating and billing for a
wide range of multi-party settlement models.
4. Legacy business practices are not able to manage the increasing number of
interconnect and content partners. This includes the implementation of new carrier
and content provider agreements, value chain complexity, and rising costs in
managing agreements.
The collective result, based on the COO’s analysis, also demonstrates that the impact of
these issues flows throughout the entire wholesale business organisation:
Buying–High-risk exposure and lead times largely caused by the time required to
process supplier’s rate sheets and numbering plans, inaccurate data held in different
computer systems, and the inability to manage rate changes and opportunities.
Routing- Declining margins associated with routing decisions; because it takes too
long to obtain data and tailor routing parameters, capacity is constrained by overflow
on individual trunk groups and switches and it is too difficult to implement new and
differentiated routing services.
Pricing–Low margins and low revenues as a result of not being able to accurately
predict termination costs, limited visibility of margins on products, agreements and
destinations, and an increasing amount of resources required to manage all the
parameters for a growing product range.
Selling–The sales team is not meeting its sales targets due to a lack of data to support
negotiations and monitor sales process and margins, time involved in updating rate
sheets and distributing new prices to customers, and the inability to access up-to-date
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Interconnect Billing – A high percentage of revenue loss due to limited financial
summarisation of traffic for detailed analysis, time required to manage
discrepancies and disputes, and systems in effective at making changes in
agreements and billing processes.
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3. VP Sales: "If when calling customers, my salespeople could have access to up-to-the
moment information to support negotiating, the monitoring of sell prices and margins and
customer profitability so we can analyse opportunities per customer, destination and
product, customise offers for customers and market segments, and make delivery
commitments that we can honour, then we can achieve our sales goals."
4. Interconnect Billing Manager: "If when doing financial analysis, my staff could turn
to their PC, select any summarised information, drill down into detailed data such as
cost formulas, cross product / partner discounts, and performance indicators and
trends so we can react quickly to financial opportunities and changing network
conditions, then we can improve our revenue performance."
Simple, better controlled, more efficient processes can turn a carriers’ wholesale business
operations into true profit centres, adding more value and improving margins. This in turn
contributes to sustainable performance improvements. The challenge is to do this without
a manually intensive, fragmented technical infrastructure, and to support a consistent and
accurate view of the complete wholesale trading, routing, billing and partner management
lifecycle.
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Marico’s Distribution Network
Marico’s distribution width and penetration is acknowledged as one of the best in the industry
and is of a leverageable strength. Every month, 46 million consumer packs are sold to about 1.8
million households through 1.7 million retail outlets spread across the country. Marico’s
distribution network covers almost every Indian town with a population of over 20,000.
32 Depots
Urban Rural
distributors
7,50,000 9,50,00
Retailers 0
R etailer
s
To penetrate the rural areas, Marico has a parallel sales and distribution network which
ranks among the top three in the industry and contributes 24% to the company’s
topline. The infrastructure for rural sales comprises more than 145 super distributers,
catering to 2600 small stockists and 9000 van markets.
In order to reap maximum benefits from the sales and distribution network, Marico has
embarked on an internet enabled application-MI net to established a network between
Marico and its distributors through a web interface. This project is aimed at providing real
time information on the status of various business operations between Marico and its
distributors. This initiative is expected to provide business benefits in the form of
increased penetration by the sales force, reduced communication costs, reduced 1
working capital requirements etc. The project went live on April 1, 2002 with connectivity 4
to 330 urban distributors, who together account for about 3/4th of Marico’s domestic
turnover. The business benefits are expected to accrue over a period of time.
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Examples of Wholesale distribution in Indian context
Sabzi Mandi: Almost every district has one or two sabzi mandi that caters to all the
retail vegetable and fruit sellers in the local markets, hawkers, large buyers like
restaurants, caterers and other consumers. The farmers supply their output to these
sabzi mandis through brokers and agents at a bulk rate. Who in turn make
arrangements in sabzi mandis in order to make these vegetables and agricultural
output available to end users at a rate slightly higher than what the cost, added
margins and transportation cost. These end users are not ultimate consumers but
retail vegetable sellers, hawkers, fruit sellers etc who facilitate end consumption by
making the agricultural output available to consumers at places or markets near
them. This whole process hence breaks bulks and allows for spatial convenience of
consumers. Sabzi mandi can be an example of stationery, speciality and limited
function wholesaler.
Sadar Bazaar: The wholesale market situated in Delhi where almost all categories of
products’ wholesalers trade e.g. Soaps, Detergents, Sugar syrups, Toys, Bags, cycles,
beauty products and much more. All the shops are examples of cash and carry type of
wholesaling outlets performing almost all important flows except delivery as it is the
responsibility of the reseller to receive the goods and transport them accordingly.
Balli-Maraan Market : The market is also situated in Delhi and only has
wholesalers trading in shoes and optical products (spectacles, lenses, sun
glasses ).Here some of the traders operate on mail order basis, where in the
retailers or other resellers order the type , size and quantity of goods over phone or
mail and the wholesaler makes them available to resellers at the specified location.
Thus, it is full function wholesaler category.
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