Every business needs two things to survive: products and customers. Products can either be actual goods or services. We'll analyze the different channels for receiving goods to resell through your business, as well as playing out two different scenarios to help you decide what options are right for you.

You can receive goods primarily through these methods.
  • Straight from the manufacturer;
  • Through a wholesaler;
  • Through a distributor;
  • Through a supplier.
Each channel has its own requirements and prices related to it. For several businesses, they'll deal entirely with one channel. A lot of times it's not the business itself that arranges what channel will be used, but rather by the size of business as well as the channels that are accessible. Not all four channels are accessible for every product, and in a couple of cases there can only be one available no matter what volume you expect.



The first channel is the manufacturer who actually makes the product. Smaller companies often sell directly to other businesses since they're new to the market, or don't have the business capital needed to go through additional channels. In situations such as this, you'll deal with an inner sales staff at the manufacturer who will address all the facets of purchasing, logistics and billing.

A wholesaler commonly works with the manufacturer to offer quantities of trade goods to other retail outlets or businesses. Frequently, they might also be the distributor of the merchandise as well. A wholesaler is generally only concerned in volume sales and will not sell single or low-quantity lots of the products. The manufacturer may be the wholesaler in a few cases. They commonly take care of all the shipping in getting the product to your warehouse, as well as billing and delivery.

Distributors usually sell in humbler quantities and purchase the products from a wholesaler. In a few cases, the distributor is also the wholesaler. Often distributors may be territorial in scope. You might also come across a distributor who handles all the matters between the manufacturer and the business buying the goods. They'll most likely come to you to advise methods of display layout, improving sales, and answering any questions you have about the product.

Suppliers cater to smaller businesses with a much lower overhead or even to individuals directly. In several situations you might have to visit their storage warehouse to pick up the products yourself. Most suppliers are usually contracted when wholesalers or distributors do not deal in small quantities for a business. They can also be used when there's no distribution method available to move goods easily through a fragmented retail environment with unsteady sales and purchasing patterns. Moreover, some suppliers may play a drop-shipper on your behalf, warehousing the goods and shipping directly to your customers.

It's crucial to recognize that with each stratum in the distribution channel the cost of the goods increases. This is why large retail firms, such as Wal-Mart, can purchase a can of tuna fish at a much lower price than a small, independent grocer can. Wal-Mart is purchasing directly from the manufacturer, whereas the independent grocer is buying from a territorial supplier or distributor who purchased from the wholesaler.



Let's look at two different scenarios to describe which scenario might work in favor with your business. We shall assume that all of the four channels are within your reach.

I. Large or Growing Commercial Enterprise with Significant Up-Front Capital

The greater volume you buy, the overall lower cost will be for each independent unit. This is why Kmart and Wal-Mart can offer lower prices as compared to independent retail merchants. Doing so requires a substantial capital investment as well as the power to warehouse and move a large amount of merchandise through your business. In this scenario, you'd deal directly with a wholesaler who'd handle the logistics for delivery of the product to your location. Many times this will be by their dedicated truck fleet, or through your own contracted trucking company who will pick up the product directly from the wholesaler. The main point is to move products through your retail business very quickly. The greater amount of time an item stays on a shelf or inside a storage warehouse, the less profit is made. Even if you buy at a lower price by purchasing a larger quantity, if an item is warehoused for a long time then the cost of storage quickly eats away the overall profit margins.

II. Small Business Wanting to Keep a Low Overhead or Buy in Smaller Quantities

In this situation you have limited capital to invest in trade goods and do not have the resources available to purchase, store or move large amounts of goods. Here you profit by dealing directly with the distributor depending upon your resourcefulness to turn-over the product. Even though your cost for each item will be higher, you'll have less overhead expenses. However, carefulness must still be used particularly when there are additional businesses in your area that carry similar products. If you can greatly undercut your costs because of the amount you purchase, you have to rethink if it profits you in general to keep on carrying that particular item. This method also benefits businesses that are just starting out. As your volume grows, you'll be able to purchase in larger amounts and can negotiate the costs or move to a whole different distribution channel.

It's important to research and evaluate all the channels accessible to you when determining to purchase merchandise for your business. Market factors, competition and accessibility will all play a factor in determining what products to carry and how to obtain them.