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Wholesalers buy in bulk, they get considerable discount from manufacturer and pass a portion of discount to retailers and finally wholesalers are located near the retailers or even delivers directly to the retailers premises. So, it is convenient for the retailers to buy from wholesalers. Basically, wholesalers has the economy of scale for everything
On the contrary, in most of the cases, manufacturer will not sale directly to the retailers because of the less volume and logistics issues. Further, If the retailers is able to buy even at the same rate as that of wholesalers, retailers shall have to arrange packing, transportation,loading, unloading; and considering all associated costs, it would not be cheaper than buying from wholesalers.
I totally agree with very eloquent reply given by Md. Fazlur Rahman and do not need to add any further.
In Addition to Mr. Md. Fazlur Rahman, There is also one other reason that is the credit limit. Wholesaler invests their a big portion of capital in the market as a credit.Which manufacturer can't give to retailers and collect the money from them one to one. So mostly manufacturer they make the distribution channels to supply their goods in the markets. Wholesalers already have good relationships in the markets so it takes fewer efforts to push more stocks to the retailers.
All parties have their specific MOQ. Absence of that MOQ actually cause costs for that party. In this case, Retailers can buy product directly from manufacturers instead of wholesalers but to do this they have maintain following things--
1. Able to place order by ensuring the MOQ of manufacturers
2. Have to be financially sound
3. Able to bear the transportation costs for good receiving
4. Able to maintain the relationship with manufacturers for a very long time.
On the other hand, by avoiding above mentioned constraints they can directly purchase from wholesalers with some additional benefits. From there they can get following facilities-
1. Can purchase little amount of products
2. Sometimes wholesalers arrange the transportation for sending goods
3. Sometimes can get credit facility from wholesalers
4. No need to maintain high level of financial soundness.
Hope this will meet your expectation.
Some manufacturers are very far and you still need a lot of process before making a deal. But when buying from wholesalers, you can have a discount too for buying a dozen or hundreds or thousands maybe. They are more accessible, no more hassle. They can also deliver it to your place.
Retailers either
· Can’t afford to buy goods in cash from companies or
· On the other hand companies don’t like to deal in small quantities
· And at a very small scale.
Even if they allow in the start of their operations for the time being then they will push customers to the scale of whole sale, along with the benefits which they (distributors) can’t resist at all. Benefits like:
· Sole distributorship
· Credit line
· Complimentary goods
· Big Margins.
In return companies get
· More investment from wholesale distributor.
Reliable demand of the product in the market.
Because the orders requested by the manufacturers are huge and this means that the retailers should block a lot of cash flow for a huge inventory which is not wise in terms of profitability.
In some cases the manufacturers have a way of distribution thus it's like a chain of supply
I agree with the answer given by Md. Fazlur.
And will add to his answer, The Credit facilities which might be given to the retailer by the Wholesaler.
first of All, the quantity that they will order from manufacturer is more than wholsalers (because save custom,shipping,insurnce,inspection,...)it means they need to spend more money at once and mostly CASH not CREDIT.so mostly retailers prefer buy from wholsalers.
Second,wholsalers usually is in their region and it means they can reach them easily in case any discrepencies.
third,most wholsalers give CREDIT to retailers who buy from them permanently.
forth,MOQ(minium ordrt quantity ) of each item is different for manufacturarer and wholsalers.It means they can adjust their MOQ from wholsalers more than manufacturer and this is an important point for retailers.
fifth,it is a TIME issue. TIME is money.so usullay it takes time to receive an order from manufacturer rather than wholsaler.
Able to place order by ensuring the MOQ of manufacturers
Have to be financially sound
