The Wholesaler/middleman is a merchant who buys goods in bulk from producers/manufacturers and sells them to the retailers. He buys the goods in bulk from the warehouses depots, puts the goods in his own warehouse, breake up the bulk, re-package where necessary, and sells the goods in smaller quantities to retailers.
The role of the wholesale/middleman in the chain of distribution of goods is very important because the functions they perform to both the producers and the final customer cannot be performed by either the manufacturer or the consumer. This does not also mean that the middlemen (Wholesalers and Retailers) does not pose any problem to the distribution of goods.
In this article, we will concentrate on the functions of the Wholesaler to the Manufacturers and the retailers. I therefore enjoin you to read this work till the end because you will learn something new today.
Table of Content
Functions of the Wholesaler to the Manufacturers
1. Breaking of bulk: The Wholesaler serves as a bulk breaker to the manufacturer to enable the retailer buy the goods. By buying the goods from the manufacturer and selling in a smaller unit to the retailers, the Wholesaler is helping the to make sure that the goods goes through the channels of distribution.
If the Wholesaler fails to perform this function, it will be difficult for goods to get to the retailer or even the final consumer because these channels of distribution cannot buy in bulk from the manufacturer.
2. Financing: In the absence of Wholesaler the manufacturer might face financial challenges in his business because he won’t be able to get back the capital invested in the production of the goods. This is another reason why the Wholesaler is indespensibel in the channel of distribution.
He facilitates the business of the manufacturer by paying in bulk, thereby motivating the manufacturer to invest more into production.
3. Information dissemination: Since the Wholesaler is more closer to the retailers and the consumers, he knows what they want and the complaints that has been made on the goods of the manufacturer.
Conversely, his function is to share those vital information with the producer and then, the producer will try to produce a good that will more likely meet the test of the customer.
4. Warehousing: Another function of the Wholesaler is that he serves as a warehouse for the manufacturer. The wholesaler provides warehousing facilities to get rid of stock – biling at the production point. Goods are stored here until they are bought, hence it spurs the Manufacturer to keep on producing.
5. Price stability: They help to prevent price fluctuation by stocking the goods until they are demanded.
Also see: Essentials of a binding and valid contract
6. Provision of transport: The existence of Wholesaler has largely made the Job of the manufacturer easy because they no longer have to go through the stress of distributing the goods to customers from different parts of the world. Wholesalers often provide transport needed in distribution. Sometimes, they send their vehicles to collect the goods from the manufacturers.
7. Credit facilities: Depending on the relationship between the Wholesaler and Manufacturer, the wholesaler can give credit facilities to the manufacturer, sometimes by paying upfront for the products. This is not possible in the absence of the Wholesaler because the consumers and retailers may not have enough money to provide that for the manufacturer.
8. Risk bearing: After buying goods from the manufacturer the Wholesaler takes the risk for anything that happens to the goods afterwards, not minding whether he will make profit from the transaction or not. The wholesaler takes charge of the goods, thereby accepting responsibility for losses suffered in the course of distribution.
9. Branding and packaging of good: Where it requires that it should be packed before soled to the final consumer, the Wholesaler must do the job of branding and packaging the goods received from the producers before selling to the retailers or the consumers.
10. Market research: The wholesaler carries out market research to provide a two-way flow of information relating to market situations between the manufacturer and potential buyers. This assists in the marketing of current products and development of new ones.
So far, we have listed and discussed some of the functions which the Wholesaler performs to the Manufacturer. Now, we will look at the functions of the Wholesaler to the retailers in the chain of distribution.
Functions of the Wholesaler performs to the Retailers
1. Provision of variety of goods: The Wholesaler does not just work with the producer of one particular goods. He works will many producer to give the retailers ability to select from variety of goods.
This also makes the job of the retailer easier because, instead of going directly to different producers he can just go the the warehouse of the Wholesaler to buy goods from different manufacturers.
2. Provides credit facilities: Just as the Wholesaler serves as a credit facility to the Manufacturer, he is also a credit facility to the retailer too. Wholesalers allow retailers to buy on credit and pay for the goods later. Indirectly, it enables retailers to run their businesses with a small capital.
3. To advice the retailer: In situations where the retailer is confuse as to the exact brand of goods to purchase, the Wholesaler can advise the retailer as a result of his expert knowledge of the goods. He can inform him about new developments in the market and quality of all the goods from all the manufacturers.
4. Makes goods available in small quantity: Wholesaler carries large stock of goods and divides it into small quantities in order to sell to the retailers. Sometimes, even if the retailer goes straight to the manufacturer, he may not be able to purchase the goods because the manufacturer sells only large quantity.
Conversely, it is through the Wholesaler that goods are able to get to retailers in the chain of distribution.
5. Transportation services: The wholesaler can also perform the function of transporting or conveying goods to the retailer’s shop. This is not always so, but some wholesalers, in certain situations, can help their retailers to transport their goods.
6. Brading and packaging of goods: The Wholesaler may also help in putting some touches to the packaging of the goods before selling to retailers. An example of this is in the selling of cars in Nigeria. Car companies in the country usually buy the parts of the cars in large quantities from abroad. They will bring them to the country, package the car and do some finishing touches before sending it to small retailers to purchase.
7. Warehousing: The Wholesaler also functions as a warehouse to the retailers where need be. The retailer can demand that his goods should be under the custody of the Wholesaler for sometime before demanding for the goods.
8. Advertising of goods: By embarking on advertising or sales promotion, the wholesaler can help in creating awareness for the products on behalf of the retailers.
9. Risk bearing: The Wholesaler bears the risk of fall in prices on behalf of the retailer by buying and storing of products in large quantity.
10. Links the retailer and the producer: Lastly, the Wholesaler serves as a link to the Manufacturer and the retailer. The retailer does not necessarily need to make complaints to the manufacturer for his complain to be heard because the Wholesaler serves as a link between them.
Above are the 10 functions of the Wholesaler to the Manufacturers and Retailers. These functions of the Wholesalers are very important in the distribution of goods. That is why middleman have continued to wax stronger in spite of all the strong arguments for their elimination.
Also see: Exceptions to privity of contract rule
Criticisms of Middlemen/Wholesalers
Below are some of the reasons why most scholars express disapproval for the existence of middlemen:
1. The existence of wholesalers makes the chain of distribution unnecessarily very long.
2. The existence of the wholesalers can cause price fluctuation, especially when too many of them are involved in distribution of product.
3. Middlemen can also lead to unnecessary price increase to the dismay of the final consumer.
4. Through hoarding, the middlemen can create artificial scarcity of products which are not actually scarce.
Edeh Samuel Chukwuemeka ACMC, is a Law Student and a Certified Mediator/Conciliator in Nigeria. He is also a Developer with knowledge in HTML, CSS, JS, PHP and React Native. Samuel is bent on changing the legal profession by building Web and Mobile Apps that will make legal research a lot easier.