Functions of the wholesaler

    1. Bulk buying
      • The wholesaler buys goods in bulk from the producers or manufacturers in the hope that he will be able to resell them at a profit.
      • Sometimes, he may import the goods from foreign countries, but he usually buys from importers or their brokers, or from commission agents acting for overseas exporters.
      • A wholesaler has specialist buyers who are in very close contact with the market and who know the various sources of supply.
    2. Risk bearing
      • The wholesaler makes his purchases based on up-to-date and reliable information on the likely tastes and preferences of consumers. He buys in advance of demand.
      • He will make huge profits if he anticipates demand correctly.
      • 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 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 the consumers.
  1. Warehousing
    • 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 glut, they can be kept off the market, and in times of shortage, released. This would prevent severe fluctuations in prices.
    • In some trades, the wholes~er grades, sorts, packs or prepares the goods for sale. He may sell under his own brand name.
  2. Breaking bulk
    • The wholesaler breaks bulk or divides the goods bought into smaller quantities.
    • He sells the goods in smaller quantities to various retailers.
  3. Transportation
    • The wholesaler provides transport for goods from the suppliers to suitable depots in the various cities, and from there, to the retailers’ shops.
    • If retailers were to buy from a cash-and-carry wholesaler, they have to provide their own transport.
  4. Finance
    • The wholesaler finances the retailer by allowing him extended credit.
    • He finances the producer indirectly by paying him promptly.
  5. Information
    • The wholesaler acts as a liaison between the retailers and producers by informing producers of the retailers’ reactions to their goods, and acquainting retailers with new products and other developments in the market.

HOW THE WHOLESALER SERVES THE MANUFACTURER, THE RETAILER AND THE CONSUMER

By carrying out the above functions, the wholesaler not only helps the manufacturer or primary producer, but also the retailer and the consumer as well.

Services to the manufacturer

Low storage expenses
  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 storage -that is, rent, insurance, wages, utilities as well as the loss of interest due to money capital tied up in stocks.
  2. The manufacturer of goods in seasonal demand such as winter clothing, 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 being produced. No manufacturer can survive if his factory is forced to close down 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 loans and wages of administrative staff.
  3. All goods are produced before there are orders for them from the retailers. The 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 bought the goods in bulk who will have to bear the risk of loss.

Reduced cash flow problems

  1. By paying the manufacturer promptly, the wholesaler reduces the amount of working capital required by the manufacturer and allows the latter to continue 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 borrow.

Low marketing cost

  1. Should the manufacturer undertake to market the goods himsel{ he will incur a lot of expenses for transport, advertising as well as administration since it is conceivable that some of the smaller retailers would prefer credit.
  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. This would reduce his marketing costs.

 

Services to the retailer

 

Purchase of small quantities

  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 manufacturer as the latter only sells in bulk. Transporting orders of small quantities all over the country would be costly for the manufacturer.

 

Reduced cash flow problems

  1. A wholesaler provides credit to a retailer and reduces the latter’s capital requirements. A producer is often not willing to grant credit to a retailer since it would increase his working capital.
  2. As a result, the retailers have time to sell the goods before they have to pay for them.

 

Low goods preparation cost

  1. A wholesaler simplifies a retailer’s work since the goods are already graded and pre-packed into convenient quantities and sizes.

Low storage expenses

  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 a time, hence saving on costs of storage, insurance and risk, in case demand is below expectations.

 

Wide choice of related products

  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 spent in dealing with each manufacturer individually. The retailer is also kept up-to-date on the latest products available. The information supplied by the wholesaler is much less likely to be biased than that supplied by the manufacturer.

 

Low wholesale prices

  1. A cash-and-carry wholesaler who is a wholesale ‘supermarket’ offers a retailer goods at lower 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:

(a) no credit facility – sales are on ‘cash’ basis

(b) no delivery service

(c) self-service – no need to employ huge staff

(d) goods stocked are those that sell quickly.

Services to the final consumer

Regular supply at steady prices

  1. Consumers are assured of a regular Supply of goods throughout the year at steady prices since the wholesaler releases the goods when required.
  2. This is particularly important for goods which are produced seasonally such as rice but whose demand is regular.
  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 raising prices unduly.

Convenient shopping and wider choices

 

  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, consumers are assured of getting the goods they want from the retailer nearest to their homes. Usually, the large retailer is situated in the city centre.
  2. The consumer is assured of a wider choice of goods even at the smaller shops, since the retailers get their supplies from a number of wholesalers, who would in turn obtain their supplies from many producers.
  3. Since wholesalers encourage the setting up of a number of smaller retailers, consumers have a wider choice of shops.

 

Consumer demand

  1. Since the wholesaler is in closer contact with the public through feedback from retailers, he can ensure that a consumer’s opinion of a particular good generally reaches the manufacturer, with whom he too has close contact. In this way, products can be improved in line with consumer demand.

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