Question

Should We Use a Wholesaler?

A common cliché is ‘let’s cut out the middle man’. Removing the middle-man (a wholesaler) from the channel will provide a higher per unit margin for a manufacturer, but will it result in a higher profit overall? For this activity, help the following manufacturer decide whether or not they should use a wholesaler?

ACTIVITY/TASK

Olive’s Olives is a producer of olives in a number of different varieties. Their factory is located in Sydney and their products retail throughout smaller supermarkets, fruit and vegetable stores, and deli’s throughout Australia. Traditionally they have used a wholesaler. On average, they sell a jar of olives to the wholesaler for $1, who resells it to a retailer for $1.50. As Olive’s Olives sells around one million jars of olives each year, they are now considering cutting out the middle-man and selling their products directly to the retailers (thus generating around $500,000 in extra revenue).

One of their senior managers has identified that for the firm to do this they would need to:

Organize for the transportation of the product to the retailers,

Set-up a ordering/billing team (to handle orders from many retailers)

Set-up a sales team (to maintain existing retailers and generate new ones)

Establish a warehouse area for the storage of stock (as it is normally stored by the wholesaler)

Be able to withstand a reduction in short-term cash flow (as most retailers will take longer to pay their invoices, as compared to the wholesaler), an

Be able to deal in smaller quantities of the product (as opposed to simply sending full truck loads to the wholesaler).

QUESTIONS

What appears to be the main advantages of using a wholesaler?

What appears to be the main advantages of dealing directly with the retailers

Would you recommend that Olive’s Olives start dealing directly with a wholesaler? Why/why not?

What kind/type of manufacturers would probably benefit the most from dealing directly with retailers?

Answer 1

1. when there is a wholesaler to a product or service, he will take of the market and provide good sales to the producer. He can perform all the activities to retain the customers by offering new customer offers at the same time attract new customers too. He will take care of the issue of demand and supply, based on it he manage the volume orders from the producer. with this, there is no need to the producer to think about the marketability of the product, he just deliver the order to the wholesaler. and the payments are in bulk, regular without any fail. If we find a good wholesaler, indirectly it means we covered the entire market in the area, which gives the manufacturer to capture the new market.

2. If the producer himself directly deal with the customers, it gives new experience to the producer. He can catch the pulse of customers directly, he can interact with the customers directly, he can collect feedback from the customers directly and make required changes to retain the customers. With this, the number of middlemen will be declined in the channel, it gives a chance to the producer to offer the product at lesser cost than earlier without losing their profits. in general, the more middlemen leads to more price of a product or service.

3. There are two sides of each coin, is the same with Olive. the benefits are higher margins, interacting customers with direcltly, can focus on more customization, attract more customers, offer the product at little bit lesser cost and so on. the drawbacks or additional burdens to the producer are- recruiting more people to take care of all these activties, deviating from only manufacturing to dealing with customers directly, preparing new plans and strategies to attract more customers, managing the godowns and transportation/logistics issues.

by considering all these, the management should take a decision. in my perception, it is better to maintain wholesalers and focus on expanding market into new places to increase the market share is better rather than removing wholesalers.

4. the firms which are having less competition in the market, which is having good market for thier products and services, the brand which is having more customer loyalty etc, these kind of producers will be benefited with direct dealing with retailers.