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Whole-Selling supply chain markets

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									Channel Institutions -
   Wholesaling



                         1
       Learning Objectives
• Understand functions of a wholesaler
• Understand various classes of
  wholesalers
• Major wholesaling decisions
• Benefits and limitations of wholesalers
• Understand about a – distributor in
  more detail
• Trends in wholesaling practices
                                            2
      Need for Wholesalers
• Widespread economy – consumers can only
  reached by thousands of retailers (except for
  consumer durables and industrial products)
• Reaching these retailers by a company
  directly is not possible (except for consumer
  durables and industrial products)
• Hence the need for wholesalers in two forms:
  – Well established free-lance wholesalers
  – Contracted distributors, stockists and agents
                                           Characteristics….
                                                          3
Characteristics of Wholesalers
• Operate on large volumes but with chosen
  group of products
  – Food, grocery, pharma or automobile spares etc
• The company itself, contracted parties or free
  lancers, can operate as wholesalers
• Mostly B2B business – trade and institutions
• Wholesaler could also be a retailer – in rural
  markets – W/s sells to other retailers and also
  to consumers

                                                     4
Characteristics of Wholesalers
• Sell physical inputs or products – tangible
  goods ( Ws in some service industries)
• Optimise results, maximise service
  (effectiveness) and minimise operating costs
  (efficiency)
• Buy goods for resale, keep inventory, take
  risks of price changes, negotiate terms,
  procure orders, deliver and extend credit.
                                 Definition…
                                                 5
               Definition

• Wholesaling is concerned with the
  activities of those persons or
  establishments that sell to retailers and
  other merchants and / or industrial,
  institutional and commercial users but
  do not sell in large amounts to
  consumers – US Bureau of Census

                                     Delivering value…
                                               6
          Delivering Value
• Keep goods accessible to customers
  instantly
• At times, get together to bargain for
  better terms
• Pass on benefits or incentives to their
  customers
• Have a wide trading area

                                            7
                                          Functions…


    Difference with Retailers
• Not too worried about location, ambience or
  promotions – prefer to be in the main market
• Deal with other businessmen and not
  consumers
• Deal with a specific group of products only
• Much larger trading area
• Much larger transactions with suppliers and
  customers
• Believe in low margins but high volumes.
                                                 8
    Functions of Wholesalers
• Varies in degree between free-lance,
  company distributors and stockists / agents
• Sales and promotion of chosen company
  products
• Buying the assortment of goods
• Breaking bulk to suit customer requirements
• Storage and protection of goods till sold


                                                9
    Functions of Wholesalers
• Grading and packing of commodities
• Transportation of goods to customers
• Financing the buying of customers
• Bearing the risks associated with the
  business
• Collecting and disseminating market
  information to both suppliers and
  customers
                                          10
       Types of Wholesalers
• Full service: stocking, selling, offering credit,
  delivery and business assistance (company
  distributors, wholesale merchants)
• Limited service: range of service is limited
  (examples include Metro C&C, mail order)
• Merchant w/s: independent businesses
• Brokers and agents: bring buyer and seller
  together – do not take possession of goods
• Others: agri business, auction companies etc

                                                  11
   Limitations of Wholesalers
• Some of them do not give complete
  information to suppliers for selfish reasons
• Cannot be relied on to do equitable
  distribution
• At times, do not want company and
  customers to meet
• Tend to hoard goods and influence pricing
• Consumers have no say in pricing or quality
  in a w/s dominated system

                                        Major decisions…
                                                  12
    Major Wholesaling Decisions
•   Which markets to operate in
•   Manpower to employ
•   What products to sell
•   Pricing decisions / Promotional support
•   Credit and collections
•   Image and customer perception
•   Warehouse location and design
•   Inventory Control
                                              13
        Favourable Factors

• Companies have limitations in market / outlet
  coverage. Wholesalers are required to fill the
  gaps
• Hundreds of small companies who cannot
  afford to set up distribution networks – need
  to depend on wholesalers
• In food grains, fruits and vegetables – hardly
  any organised distribution network.
  Wholesalers help move goods from farm gate
  to consumers

                                               14
       Favourable Factors
• Big companies also need wholesalers to
  get big volumes
• W/s extend credit to customers.
  Companies cannot match this
• Retailers have to visit w/s markets to
  buy food grains, cereals and pulses –
  buy a lot more.


                                 Unfavourable…
                                          15
      Unfavourable Factors
• Companies coverage focus on retailers
  and institutions through their distributors
• Using modern retail formats as
  wholesalers
• More outlets like Metro C&C being
  encouraged
• Enforcing strict price control so that w/s
  do not sell below company prices.
                                            16
                  Distributor
• Is a wholesaler nominated by a company to
  exclusively re-distribute the company
  products to its customers in a designated
  territory. He does not deal in competitor’s
  products. Does not sell from his premises.
  Extends credit selectively.
  – A redistribution stockist for HLL
  – A distributor for Philips lighting division
  – A distributor for L&T engineering division

                                                  17
                     Dealer
• Role similar to a distributor but
   – May not have a clearly defined territory and may
     sell both in the market and from his shop
   – May deal with competitive products also
   – Extends credit selectively.
   – Dealers in industrial products may have better
     defined roles.
• Examples:
   – Dealer for an edible oil company
   – A dealer for garment brands
                                                        18
                 Stockist
• May be working for a company with a
  designated territory but does not re-
  distribute the stocks. Sells from his
  premises. Extends credit selectively.
  – A stockist for paper products
  – A stockist for automobile spares
• Re-distribution is visiting customer
  premises to sell products
                                Managing distributors….
                                                     19
      Managing Distributors
• The principles are similar across
  industry verticals. FMCG is the most
  complex.
• Has the capacity to maximise sales and
  market shares.
• Has to ensure buying goods from the
  company and re-distribution to the trade


                                         20
                                           Why necessary?….

       Managing Distributors
• Distributor responsibilities include:
   – Buying adequate quantities by Stock Keeping Unit
     (SKU) for redistribution
   – Ensuring full market coverage of all customers in
     the territory assigned to him
   – Help finance the operations – pays for the goods
     upfront but extends credit to his customers
   – Maintaining inventory of company products
     adequate at all times to service the market
   – Assist company in its promotional efforts



                                                        21
         Need for Distributors
• Under three circumstances:
   – For entering a new town
   – For additional coverage in the same town
   – For replacing an existing distributor
• For entering a new town, assess the potential
  for business to decide:
   – If the town can sustain a full fledged distributor
   – The number of distributors required
• Starts with a town profile of potential, number
  of customers to be serviced and the
  competition.
                                                               22
                                          Cost of servicing…
            Cost of Servicing
• Cost benefit of using distributors to be
  assessed
   – Logistics cost of serving the market
   – The number of customers to be covered by
     category – wholesalers, retailers, institutions
   – Frequency of visits to markets and outlets
   – Sales revenue estimate from each visit
   – Markets to be covered with ready stocks or order
     booking for later delivery
   – Likely collections during each visit – gives an idea
     of the credit requirements

                                           Expectations…   23
         Expectations from a
             Distributor
• To be stated at the start of the relationship
• Helps get the right kind of distributor also
   – Achieving sales targets – volume, value and packs
   – Financial commitment on inventory and credit
   – Investment in infrastructure – space, vehicles
   – Manpower – front line and back office
   – Distribution effort – market and outlet coverage as
     per a beat plan with productive calls
   – Developing new markets and new accounts
   – Managing key accounts and institutional business
                                                      24
        Expectations from a
            Distributor
• Merchandising and displays in the market
• Secondary sales efforts and tracking – critical
  for fmcg and pharma (secondary sales is
  sales from the distributor to the outlets in the
  market)
• Effectively handling promotions and schemes
  initiated by the company
• Managing damaged stocks

                                                 25
        Expectations from a
            Distributor
• Organising and participation in promotional
  events
• Assist company in making a success of
  launching new products and packs
• Handling consumer quality complaints
• Handling statutory requirements on behalf of
  the company
• Payments and remittances promptly to the
  company

                                                 26
            Key Learnings
• Wholesalers are required to reach hundreds
  of customers and retailers
• Wholesaler business is usually B2B
• Wholesalers can be free-lance or appointed
  by companies – like distributors
• Company distributors are bound by strict
  operating norms
• Future of wholesalers in India still seems
  favourable

                                               27

								
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