B2B eCommerce 101: manufacturers vs. distributors vs. wholesalers

Alibaba.com JULY 20, 202216 MIN READ
B2B eCommerce 101: manufacturers vs. distributors vs. wholesalers

There are a lot of stakeholders involved in the e-commerce sector. This includes the customers but also the people who produce the goods and get the finished product to the customers. The most popular stakeholders involved in getting products to the hands of end consumers include manufacturers, distributors, and wholesalers.

Every e-commerce business, whether directly or indirectly, depends on manufacturers, distributors, and wholesalers to function. But what’s the difference between the three, and which one are you supposed to work with? These three parties are interlinked and are commonly confused for one another. This article discusses the differences between manufacturers, distributors, and wholesalers.

What is a manufacturer?

A manufacturer is a company or business entity that produces goods and sells them to wholesalers, distributors, or customers. Some manufacturers focus on creating the parts and raw materials used to make some products. Other manufacturers are responsible for assembling and producing finished goods/products. This means one manufacturer can produce raw materials needed to make a product like a computer while another manufacturer assembles different raw materials to produce the computer.

In e-commerce, manufacturers are responsible for making products that reach the end consumers through wholesalers and retailers. Sometimes, manufacturers cannot sell directly to end consumers, and for this reason, they need a distribution channel to get goods to the consumers. This is where a distributor comes in.

Manufacturers vs. Distributors vs. Wholesalers

What is a distributor?

Distributors are resellers of products. A distributor could be an individual or an entity that places bulk orders with manufacturers and sells small quantities to wholesalers, retailers, and end consumers. They are usually the first point of contact for manufacturers, and they distribute products to different people in the supply chain.

Usually, distributors can work with different manufacturers but can not trade similar items produced by different manufacturers. This is because they often sign contracts with manufacturers to distribute their products and not their competitors. For example, a distributor who gets televisions from Samsung may not be able to distribute televisions from LG. In this case, this distributor can only distribute televisions from Samsung or LG, not both at the same time due to agreement.

Also, distributors often get a service fee from the manufacturers they work with, and they have a considerable influence in the promotion and marketing of goods. They promote products to different parties and customers to increase sales of products.

What is a wholesaler?

A wholesaler is an independent trader who gets goods in bulk quantities and then sells them in smaller units. For example, a wholesaler can get two cartons of candies, each containing 20 packs, and then sells it per pack to retailers.

Wholesalers act as intermediaries between manufacturers and the retailers who get the goods to end consumers. Unlike distributors, wholesalers can buy goods from various manufacturers and distributors and have no agreement to sell an item exclusively. In this case, a wholesaler can sell both LG and Samsung televisions. Also, manufacturers may work with different distributors to stock their inventory.

Wholesalers make money by getting discounted prices on bulk orders. They purchase in bulk and then sell smaller units to customers at higher prices to make money.

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Manufacturers vs. Distributors vs. Wholesalers: What's the difference?

In the supply chain, manufacturers, distributors, and wholesalers often work together to get goods into the hands of retailers. The manufacturers produce the products and provide them to the distributors, who then sell them to wholesalers. Then, wholesalers sell to retailers, who sell to the end consumer.

  • Working with Manufacturers

    Manufacturers sell in very large quantities so it's best to work with them if you intend to buy goods in large volumes. In most cases, distributors work with manufacturers to sell to wholesalers. If you sell different types of products, you may have to work with different manufacturers, and that may not be feasible if you run a small store.

  • Working with Distributors

    Distributors work directly with manufacturers to get goods in the hands of buyers, including other business owners. Most distributors often offer one type of product and sell in bulk at a cheaper rate. As a wholesaler, you can buy in bulk from a distributor at a cheap rate. Also, you may have to work with different distributors to stock your store.

  • Working with Wholesalers

    Wholesalers often work with retailers and sometimes other wholesalers. They buy in bulk from distributors or manufacturers and then sell to B2Cs who want to sell in small units to consumers.

Here are some differences between manufacturers, wholesalers, and distributors using some key features:

1: Customers

Manufacturers, distributors, and wholesalers have the end goal of getting products to consumers. However, these three parties have different customer entities. Manufacturers partner with distributors to get goods to wholesalers, retailers, and sometimes end consumers. Meanwhile, distributors partner with wholesalers while wholesalers often partner with retailers.

2: Relationship with manufacturers

Distributors are the first point of contact with manufacturers, and they typically enter a contract with them. The contract may state that they can not sell their competitors’ goods or can only distribute in a particular location. This means a manufacturer can work with distributors in different locations to get their goods to many buyers.

Meanwhile, wholesalers often work with distributors to get products to retailers. In some cases, wholesalers can get goods directly from manufacturers without going through the distributor. However, in this case, the wholesaler is not expected to enter an agreement with the manufacturer.

3. Distribution channel

A distribution channel describes the path that a company goes through to deliver services to consumers. There are three main types of distribution channels:

  • Zero Level or direct channel (Manufacturer to Customer)

    This involves the exclusion of an intermediary in the supply of goods to consumers. Basically, in the zero-level distribution channel, manufacturers work with customers directly.

  • One Level channel: (Manufacturers to Retailer to Customer)

    This channel uses a retailer as an intermediary to get goods to customers. In this case, manufacturers sell to retailers, who then sell to customers.

  • Two Level channel: (Manufacturers to Wholesalers to Customer)

    In this case, wholesalers buy in bulk from manufacturers and sell in units to retailers who end up selling it to end customers.

  • Three-Level Channel (Manufacturer to Distributor to Wholesaler to Retailer to Customer)

    Here the manufacturers work with an agent or distributor who assists in selling goods to wholesalers. The wholesaler then sells to retailers, who eventually sell to end customers.

**Manufacturers are involved in all distribution channels; wholesalers exist in two-level and three-level channels, while distributors only exist in three-level channels.

4. Scope

Distributors operate on a wider scope as they can sell to multiple parties like wholesalers, retailers, and consumers. Wholesale operations represent a limited scope as they usually only sell to retailers.

5. Revenue

Wholesalers finance manufacturers' business by buying large quantities, allowing them to keep producing. Retailers finance wholesalers by buying smaller units at a price slightly higher than the manufacturer. Distributors often work as an employee of a manufacturing company and get a percentage for goods sold depending on the agreement with the manufacturer.

The differences between manufacturers, distributors, and wholesalers are summarized below:

Basis for Comparison Manufacturers Distributors Wholesalers
Definition Produces and assembles goods for sale. Resell goods so that they reach the end consumers. Purchase goods in bulk and then sell them in smaller units to B2C retailers
Customers Produce goods for sale Work with manufacturers to resell produced goods. Work with distributors to get goods for sale
Contract —————— Enter into a contract with manufacturers. Do not enter into contracts with manufacturers or distributors.
Promotion —————— Often involved in the promotion of brands and manufacturers to increase sales. Hence, they act as a sales representative to producers. Do not involve in promotion
Customers Distributors Wholesalers, retailers and end consumers Retailers
Competing Items —————— Distributors often enter into an agreement to sell no competing products Manufacturers don't enter into an agreement and can sell competing products
Distribution channel Zero level, Level one, level two, and level three Level three Level two and Level three
Business model B2B B2B and B2C B2B

Roles of manufacturers, distributors, and wholesalers in the supply chain

Here are some critical roles of manufacturers, distributors, and wholesalers in the supply chain.

Roles of manufacturers

The key role of a manufacturer is to produce goods. Manufacturers are responsible for operating the production system to produce goods for sale. Depending on the business, a manufacturer may focus on just one type of product or a different product in the same industry. For example, a manufacturer may focus on just manufacturing laptops or may decide on combining them with other gadgets like video games and phones. However, most manufacturers usually stick to one type of product.

Roles of distributor

Here are some major roles of a distributor in the supply chain:

  • Serves as a point of contact

    Distributors serve as a middle man or intermediary between manufacturers and end consumers.

  • Distribute goods

    Distributors are in charge of taking orders, managing inventory and distributing goods to wholesalers, retailers, and consumers. It is their role to find B2C, and B2B buyers do a manufacturer’s products.

  • Promotion

    Distributors often have to come up with marketing strategies and promotional activities to expand their customer base. They have the marketing channels and abilities to ensure other people have access to manufactured goods.

Roles of wholesalers

Wholesalers are a major party in the supply chain1, and here are some of their roles:

  • Bulk breaker

    Manufacturers often sell in bulk which may be too much for a retailer or end consumers. Wholesalers serve as bulk breakers who buy goods in bulk and then sell to retailers in small units. Without a wholesaler, manufacturers may find it difficult to get goods to retailers because they can't buy in bulk.

  • Warehousing

    Also, wholesalers often serve as an indirect warehouse for manufacturers. Wholesalers often buy various goods in advance, so they are always available for customers. In this case, wholesalers help manufacturers get rid of stock, making it easy for them to keep producing.

  • Transportation

    Manufacturers may encounter some logistics constraints if they try to deliver directly to consumers and retailers. That is why a wholesaler removes the stress of having to distribute goods to customers in different parts of the world.

  • Risk bearers

    Once wholesalers get goods, they are responsible for getting the goods sold. In this case, they take the risk of anything that happens to the goods. They also account for the profits and losses they may incur on such products.

Manufacturers vs. Distributors vs. Wholesalers

Factors to consider when choosing a supply partner for your online business

As an e-commerce business owner, your supplier is a major component of running your business. You can go directly to the manufacturer, work with a distributor or buy from wholesalers depending on your type of business. However, as you know, not all partners and suppliers are equal, so it’s best to follow some tips to choose the right person. Here are some factors to consider when trying to choose a partner for your business:

1: Role in the supply chain

The more you understand the roles of each party in the supply chain, the easier it is to choose the right partner. It’s essential to do your research to understand the best party in the supply chain that will work for your type of business.

2: Cost:

Price is perhaps one of the most important deciding factors when choosing a partner or supplier for your e-commerce business. You can consider the costs of getting goods from one person compared to another. Fortunately, you can use e-commerce sites like Alibaba.com to compare costs. However, it's best if you don't place all your focus on cost.

3: Business model

As a business owner, the supply chain party you choose to work with will depend on your business model. You may need to choose between a wholesale distributor, manufacturer, or distributor. If you run a B2B or wholesale business, it’s best to work with a manufacturer or a distributor. However, if you run a B2C store, working with a wholesaler is more feasible than working directly with the manufacturer.

4: Business size

Another factor to consider when choosing a partner for your online business is your business size. If you run a medium-sized store and can buy in high volume, then you need a supplier who can provide the number of goods you need.

5: Expertise

It’s best to work with suppliers with expertise in a particular product or industry. It’s often better to work with suppliers with expertise and knowledge in a specific industry than a vendor offering a wide range of unrelated products. For example, a supplier who offers just jewelry is more likely to have enough expertise in this industry than a supplier who combines jewelry with electronics, baby toys, pet food, and other unrelated products.

6: Quality

To keep your store running, you must sell products that meet customers' expectations. For this reason, it's best to work with suppliers with a history of selling quality products. You may check for reviews and conduct thorough research to confirm that your potential supplier offers original goods.

7: Location

The closer a manufacturer or distributor is to you, the easier it is to get your goods delivered. As an e-commerce business owner, it’s sometimes better to work with suppliers close to you, especially for logistics reasons. However, if a supplier seems far away but offers better deals and products, you can work with them as long as there is a reliable shipping method.

8: Product portfolio and offering

It's important to know if your supplier can offer the exact brand and type of product you want. Also, if you sell different types of goods, it may help to work with a wholesaler that can provide for your different product needs. This is better than working with different suppliers for your different needs.

For example, if you sell makeup accessories, including lipstick, concealers, powders, and sunscreen. Then working with a wholesaler who sells various makeup accessories is better than working with one who only sells lipstick. Ensure you work with a partner that offers essential products you sell so you won't have to work with multiple wholesalers.

9: Shipping and availability

If you are sure a partner's products can meet your desired quality, you also need to ensure they will be available to deliver consistently. Delivering your goods late can affect your business because your customers will take the hit. Therefore, ensure you work with a partner that offers reliable shipping so you can meet customers' expectations.

10: Customer service

It's essential to work with a partner that has good customer service. You want someone you can easily reach out to, someone who will consistently have products you need to meet your customer satisfaction.

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7 tips for choosing the right partner for your business

The partner you pick can impact your business and your relationship with your customers. For this reason, you want to work with someone great for your business. Here are some tips and steps to help you work with the right partner:

1. Do your research

First, you want to find suppliers with products you have an interest in. If you are a first-time business owner, consider conducting research to find products that are likely to sell well. Once you know the type of goods you want, invest in researching potential suppliers for that product.

2. Know where to look

You don't have to look far or move an inch to find a reliable supply as long as you know the right place to look. Consider using e-commerce platforms and search engines to find suppliers based on different factors, including price and product portfolio. Some platforms you can consider for your research include Google, Alibaba.com, Aliexpress, and Amazon.

3. Check for reviews

Knowing what other vendors think about a particular supplier is essential before doing business with them. If you use platforms kike Alibaba.com or Amazon to find suppliers, you will be able to see reviews from other buyers. You can also go to search engines and websites like Quora to find reviews related to a particular product or supplier.

4. Communicate with suppliers

Once you find a supplier you can work with, you must discuss your needs and if they can fulfill them. Is there a particular brand you need? Do they have a MOQ, and does it work for you? Are they willing to send samples over? A supplier should have a constant channel where you can reach them to communicate your needs and tackle issues. If you have a supplier that you can't reach easily, it's better if you start considering someone else.

5. Negotiate to find the best prices

Another tip to work with the best supplier is to look for someone who provides the best product margin. Generally, you will get low prices if you buy goods in bulk and in large quantities. However, to reduce the cost of goods and find the best margins, you will need to negotiate. Propose a counter offer to your supplier or present a better proposal that can work for both of you. For example, you can negotiate on the MOQ, offer a long-term partnership, or pay a down payment to get better discounts.

6. Order samples to confirm the quality

Ordering samples before buying in bulk is a great way to test if a supplier or product is good for you. This way, you'll have a better idea of what the goods look like and if the supplier offers great customer service. If a supplier is sure of the product they offer, sending samples over will not be such a problem.

7. Don't rush into a relationship

You don't need to rush into a long-term relationship if you don't think a supplier is right for you. Compare different suppliers, work with different suppliers and monitor their performance until you find someone perfect for your product needs.

Start selling on Alibaba.com

Running an e-commerce business involves not just selling products but also looking for a partner to supply the products you sell. As a business owner, Alibaba.com is a great online marketplace where B2B buyers and sellers can source the best suppliers in your industry. You can also set up a storefront and reach a global audience with Alibaba.com. Open a seller account on Alibaba.com today and start benefiting from the world’s largest online marketplace.

Reference:
1. https://financesonline.com/supply-chain-statistics/

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