Goods flow:
Manufacturers -> wholesalers -> retailers -> consumers.
But I imagine it’s the same goods that’s being transferred through all these steps. So, what’s the value added here between all these steps?
For example, why don’t retailers directly buy from manufacturers?
Why don’t consumers directly buy from wholesalers or even the manufacturers themselves?
In: Economics
Retailers occasionally will purchase direct from source, depending on the industry you’re talking about (particuarly high-end resturants do this all the time.)
Broadly speaking, the reason most companies and consumers don’t is convenience. The consumer values money, but also values time. They will not go to 120+ manufactuerers and buy product by the pallet just because it is cheaper. I also don’#t want to travel 250-350 miles to the factory where it’s made (which may not be in my country, or even the same continent) to purchase a single product.
The retailer is by far the most convenient experience. The consumer only needs to go to 1-3 stores, and it able to purchase everything they need in one place in portions they can store in thier home or buiness.
They make it easier and more convenient for everyone to get what they need, when they need it, in the quantity that they need. Wholesalers buy in large quantities from manufacturers and then sell in smaller quantities to retailers. This saves retailers from buying more than they can handle. Retailers then sell products directly to consumers in a way that’s convenient for everyday shopping. If consumers bought directly from manufacturers or wholesalers, they’d have to buy too much, wait longer, or deal with complicated processes. So, each step helps get products closer to consumers in just the right amounts, making shopping simple and accessible for the everyday person.
Most consumers can’t buy wholesale because to be able to purchase wholesale you need a business or tax id and a regular consumer wouldn’t have that unless they have a business. Most retailers don’t buy straight from manufacturers because they either don’t know where to find them or they have a Minimum order quantity that is too high for the retailer to meet/buy
> Why don’t consumers directly buy from wholesalers or even the manufacturers themselves?
There are several reasons why consumers don’t typically buy directly from wholesalers or manufacturers, both before and after the invention of online shopping and improved delivery systems, saying this online shopping helps in bridging the gaps between manufacturers and consumer.
on top of my head one of the reason are the minimum order requirements or bulk purchasing set by the manufacturers and shipping cost from manufacturers to consumers, A manufacturer in California shipping a single kilo of apples to a consumer in New York would incur high shipping costs that would negate any savings from bypassing the retailer.
Logistics will play a big role here. A direct factory to consumer transaction may require the consumer travel 1,000 miles and the manufacturer to set up a retail operation on site. That doesn’t work well for buying 1 box of toilet paper.
It can actually cheaper for the factory to send a full truckload of toilet paper to a wholesaler or distribution center, then a truckload of mixed goods to a retailer where you can then buy that TP along with a few other items.
Yep, the (most) wholesalers don’t want to deal with consumers because gearing the business to sell in bulk to retailers is very different to selling lose product to consumers.
Retailers (most) want to deal with wholesalers so they have a single point for a large amount of their stocked range, rather than dozens or hundreds of relationships and orders and accounts they need to track. Employing someone to do that can often cost more than you would save in costs. Although larger retailers will see the economy of scale and will.
Exceptions in all cases, like a retailer who has a bestseller goes direct to manufacturer because the slight improvement in price makes a difference when you are selling thousands of the product.
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