Wholesaling Chapter 15 with Duane Weaver

Sector Overview Wholesaler-Distributor (W-D) W-D role in supply chain Growth and Influence of W-Ds

Essential tasks of Independent Wholesaler-Distributor Tend to manage all 8 generic flows passing information and such, both downstream and upstream Three great challenges of wholesaling: 1. Doing the job correctly (without errors) 2. Doing the job effectively (maximum service) 3. Doing the job efficiently (low costs)

Innovative Value in Wholesaling Stock the right items in the right volume…act as an inventory extension of the retailer Organize Federations of business – process designed in advance  Wholesale-led – growth in consortium relationships (alliances, holding companies, or divisions)  Integrated Supply – Exclusive wholesaler (or wholesale group) in exchange for high stock levels, and product mix and service levels.  Manufacturer-led – Create their own wholesale-distributor solutions (e.g.: Volvo bulk warehouse in U.S. near FedEx, Memphis, Tennessee)

Voluntary and Cooperative Groups Wholesaler Voluntary Group – wholesaler bands together retailers voluntarily to be able to provide more economical service (via economies of scale and/or similar of market characteristics). E.g.: IGA. See values on p. 488, table  Standardized operating procedures  Common logos  Structured marketing agreements Alternative Federations Downstream – same idea as above but initiated by retailers…CO-OP.  Members (retailers) buy shares and become owners of the Cooperative Wholesaler.  Results in strong congruencies that lead to economies of scale in wholesaling.  Have a more formalized structure and are better able to influence the marketing efforts of the retailers (owner-members) than in the wholesaler voluntary group.

CONSOLIDATION Trend Increase in retailer size pressures wholesalers to consolidate to obtain related efficiencies Huge Wholesalers with much growth via acquisition Drives manufacturer consolidation Wholesale winners of consolidation: 1. Catalyst firms (rapid acquisitions) 2. Late entrants with defensible niches (after consolidations) 3. Extreme specialists 4. Extreme generalists, large and versatile

Future of Wholesaler-Distributors International Expansion  Reduced cross border shipping costs  Lower trade barriers (NAFTA, EEC)  Fundamentals of wholesaling precludes most from becoming international (wholesaling tends to maintain economies of scale by “meeting the needs of a local market”) E-Commerce – four wholesaler challenges: 1. Broader aggregated geography of markets 2. Pricing widely available 3. Distribution segregated from other service outputs such as customer service (now wholesaler can specialize in a function and outsource more?) 4. Information functions can be 3 rd party internet-based institutions  E-business models 1. Independent Exchanges (consolidate buying with online catalogue) 2. Supply Chain Networks (internet based integrated supply..EDI software driven expertise) On-line retailers impact  driving growth of larger wholesalers due to “drop ship model”, e.g.: Amazon.com

Vertical Integration in Wholesaling Trend of HUGE “Power Retailers” to bypass independent wholesaler- distributors. Two types: 1. General-merchandise power retailers (Wal- mart, Kmart, Costco…) 2. Category-dominant power retailers (category killers) (Staples, Petco, Home Depot, Toys “R” Us…)

Manufacturer’s Representatives vs. Wholesaler-Distributors MRs (manufacturer’s representatives) enable manufacturers to have much greater control over the market and prices than through wholesale distributors. Function like sales force for manufacturers finding distribution opportunities. Never possess product, rather negotiate and service the transfer and sale of goods. May still use wholesaler warehouse for inventory management and shipping.

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