The Pros and Cons of Using Wholesalers for Business
There are certainly many benefits to utilizing wholesalers. Not only can they save you money when buying wholesale stock, they also help streamline your purchasing systems so that everything works much more efficiently.
However, wholesalers are not always the best option for smaller enterprises or if you deal in a specialized product.
This is understandable when you look at the wholesaler business model. They focus on moving large quantities of product at lower prices that enable B2C businesses to make a profit.
This is fine if you are a large business, however smaller outfits may not need such large orders in order to benefit from the discounts.
And if you are a specialized business, it could be difficult finding a wholesaler that deals in the kind of products you sell
Although we will not go into the nuts and bolds of it within this article; wholesalers should only be one aspect of your supply chain.
A diverse business purchasing strategy, (that involves smaller independent producers) will only help in the long run. After all, no business should have all its eggs stacked in the proverbial basket.
For now, let’s take a closer look at the pros and cons of what will undoubtedly be a major player in your stock buying methods; the large discount wholesaler.
1. The different types of wholesaler
It is possible to define a wholesaler as a link in the supply chain. They exist to provide businesses with products created by other businesses.
However, using that description a small bakery is classed as a wholesaler when it distributes its cakes to local cafes in order to sell on to the customer.
This type of outfit is known as a small, independent wholesaler. Much like the bakery example, the business makes and sells specialized products that are then sold on by retail outlets.
If you are running a small coffee shop you may not have the space, staffing or equipment to bake your own confection, an independent wholesaler providing such goods will definitely be of use.
As described in the introduction, large warehouse wholesalers distribute a huge selection of (normally mainstream) products, sourced from multiple large manufacturers.
Because they are dealing in such large volumes, they can afford to offer lower prices on the product. This cost saving purchasing model enables your business to make a profit when you sell the goods on at retail prices.
In both examples, whether you are using an independent wholesaler or one of the larger distributers, having them as part of your purchase supply chain, can be a major source of your business profitability.
2. Finding the Right Wholesaler
There are a few factors when it comes to finding a wholesaler that is a right fit for your business.
You should not come across any issues when it comes to sourcing a wholesaler. We recently did a review comparison of the big 3: Sam’s Club, Costco and BJ’s Warehouse, and you can find local variants via a quick internet search.
The benefit of wholesalers such as these is the ease with which you can order online.
If it is a specific product you are after you might need to do a bit of research. Check the manufacturer’s website for a list of distributors.
You might also want to contact them directly to find out which companies wholesale their product lines close to you.
Once you’ve sourced an appropriate wholesaler that is dealing with the products you are after, you will also need to analyse a few other variables:
- What are their minimum order and delivery amounts?
- Do they have distribution schedules?
- What cost savings will you get by utilising them as a middle-man?
- How much is an annual membership?
- Do they have a good overall reputation? (Check reviews online and/or ask other businesses that may have also used this wholesaler.)
With the correct amount of due diligence you will find a wholesaler that is right for your business, and will hopefully enjoy a long lasting relationship with them.
3. Issues with inventory
Setting the correct order amounts can be difficult when you start working with wholesalers.
You want the bulk buys to benefit from the lower prices, however you do not want unsold inventory destroying your cash flow (and obviously profits).
You can be in trouble if you end up with more inventory than you can use. Perishable goods very clearly represent a problem. What you don’t sell is money flushed down the drain.
On any type of good however, money tied up in stock is money that cannot be used elsewhere.
If some major expenses come in you are going to loathe the fact you got so carried away buying goods from the wholesaler.
Getting the balance right is what good business (and knowing your market, consumer demand fluctuates after all) is all about.
4. Don’t forget the E-Commerce options
Small businesses can now source goods from independent wholesalers that have a presence online.
However, it can be difficult to sort through thousands of options to find the right ones for your company.
And even then, you will need to strike deals in order to benefit from any price reductions through bulk purchasing.
Ecommerce options are still a good resource however.