Wholesaling (Chp. 15)

Chapter 15 with Duane
Sector Overview
Wholesaler-Distributor (W-D)
W-D role in supply chain
Growth and Influence of W-Ds
Essential tasks of Independent
Tend to manage all 8 generic flows
passing information and such, both
downstream and upstream
Three great challenges of wholesaling:
Doing the job correctly (without errors)
2. Doing the job effectively (maximum service)
3. Doing the job efficiently (low costs)
Innovative Value in Wholesaling
Stock the right items in the right volume…act as an
inventory extension of the retailer
Organize Federations of business – process designed in
Wholesale-led – growth in consortium relationships (alliances,
holding companies, or divisions)
Integrated Supply – Exclusive wholesaler (or wholesale group) in
exchange for high stock levels, and product mix and service
Manufacturer-led – Create their own wholesale-distributor
solutions (e.g.: Volvo bulk warehouse in U.S. near FedEx,
Memphis, Tennessee)
Voluntary and Cooperative Groups
Wholesaler Voluntary Group – wholesaler bands together retailers
voluntarily to be able to provide more economical service (via economies of
scale and/or similar of market characteristics). E.g.: IGA. See values on p. 488,
table 15.2.
Standardized operating procedures
Common logos
Structured marketing agreements
Alternative Federations Downstream – same idea as above but initiated by
Members (retailers) buy shares and become owners of the Cooperative
 Results in strong congruencies that lead to economies of scale in wholesaling.
 Have a more formalized structure and are better able to influence the marketing
efforts of the retailers (owner-members) than in the wholesaler voluntary group.
Increase in retailer size pressures wholesalers to
consolidate to obtain related efficiencies
Huge Wholesalers with much growth via acquisition
Drives manufacturer consolidation
Wholesale winners of consolidation:
Catalyst firms (rapid acquisitions)
Late entrants with defensible niches (after consolidations)
Extreme specialists
Extreme generalists, large and versatile
Future of Wholesaler-Distributors
International Expansion
Reduced cross border shipping costs
Lower trade barriers (NAFTA, EEC)
Fundamentals of wholesaling precludes most from becoming international
(wholesaling tends to maintain economies of scale by “meeting the needs of a
local market”)
E-Commerce – four wholesaler challenges:
Broader aggregated geography of markets
Pricing widely available
Distribution segregated from other service outputs such as customer
service (now wholesaler can specialize in a function and outsource
4. Information functions can be 3rd party internet-based institutions
E-business models
Independent Exchanges (consolidate buying with online catalogue)
2. Supply Chain Networks (internet based integrated supply..EDI software
driven expertise)
On-line retailers impact
driving growth of larger wholesalers due to “drop ship model”, e.g.:
Vertical Integration in Wholesaling
Trend of HUGE “Power Retailers” to
bypass independent wholesalerdistributors. Two types:
General-merchandise power retailers (Walmart, Kmart, Costco…)
2. Category-dominant power retailers (category
killers) (Staples, Petco, Home Depot, Toys
“R” Us…)
Manufacturer’s Representatives vs.
MRs (manufacturer’s representatives) enable
manufacturers to have much greater control
over the market and prices than through
wholesale distributors.
Function like sales force for manufacturers
finding distribution opportunities. Never possess
product, rather negotiate and service the
transfer and sale of goods.
May still use wholesaler warehouse for inventory
management and shipping.
Thank You