As technology advances and the internet becoming a basic need, digitization is becoming a norm. Everything is moving to the virtual world. Businesses are not exceptional. In this era, e-commerce is the new way of generating revenue in your business. You need to sell your products or service through the virtual space.
However, unlike in the physical arena, customers only interact with item images. No physical assessment of the items. Also, it is the role of the seller to ensure that the products get to the buyer. This aspect provides an opportunity for many types of business models to arise in the facilitation of the e-commerce process.
Wholesaling and warehousing are one of them. But how does this model operate? Read on to learn more.
What is Wholesaling and Warehousing Business Model?
Before discussing how the wholesaling and warehousing business model works, it is important to understand it. This model combines two concepts – wholesaling and warehousing. Wholesaling involves buying and selling items in bulky to vendors, retailers, or consumers. On the other hand, warehousing involves the storage and management of inventories.
In this essence, wholesaling and warehousing is a business model that involves buying items in bulk and storing them – in a warehouse – to sell them to retailers and vendors at a discount. Usually, this model work for business-to-business (B2B) companies rather than from the seller to consumer (B2C).
How Does Wholesaling and Warehousing Business Model Work?
With the rise of e-commerce, wholesaling and warehousing is the heart of these businesses. The model involves three main parties:
Manufacturer/producer /supplier
The producer or manufacturer is the product creator. Production is their main role. These producers can be automotive and vehicle makers, phone companies, milling companies, or large scale producers. Their goal is to provide the item required in the market. The supplier receives the vendors’ orders and sends them to the wholesaler for fulfillment.
Wholesaler
A wholesaler is an entrepreneur working as the link between manufacturer and vendors/consumers. Their role is to fulfill orders, ensure consistent supply to vendors and retailers, and other distribution channels. As a wholesaler, you require a warehouse for storing bulk items and releasing them to the market according to the demand and supply.
Vendors/retailers
These vendors can be online store owners. Most of them do not have a warehouse or even an inventory –as is the case in the drop-shipping model. As such, their main role is finding customers. They do this through various marketing approaches such as advertising and branding.
Also, they hire sales teams to promote the products and receive orders. The vendors then forward the orders to the supplier for fulfillment or delivery of the items to their premises.
As such, wholesaling and warehousing is the bridge between a manufacturer and the vendors. These businesses ensure that vendors meet customers’ demands at any given time. Also, they help manufacturers in adequate production, offer efficient storage, and real-time delivery of products. This way, they maintain fluidity in the business cycle.
Example of Wholesaling and Warehousing Business
If you are an online store owner, you have dealt with a wholesaler at one point. A good example of this business is Alibaba. This entity sources products from the manufacturer and offers them in bulky to online stores and vendors. As a buyer, you need to order some items in bulky. Also, it acts as the preferred option for many drop shippers.
Ron Watson trees is another type of wholesaler. This company buy Christmas trees from farmers, store them in their warehouses, and sell them to vendors and retailers during the festive season.
Pros and cons of Wholesaling and Warehousing business model
Wholesaling and warehousing is a superb business model. Nonetheless, it has its pros and cons which you need to understand before deciding whether it’s a suitable option for you. Here they are:
Pros
Easy scalability
The goal of every entrepreneur is growth. You want to scale your business from one level to another. The backbone of business scaling is sales. If you are driving more sales, you are likely to experience fast growth. The opposite is also true.
In wholesaling, you deal with retailers. Your relationship with them determines your growth. When you establish a good relationship with them, you will enjoy continuous sales and revenue generation. The retailers will require new stocks every time. This way, you will have consistent revenue that will help you scale your business.
No marketing expenses
As a wholesaler, your role is ensuring a consistent supply to the vendors. You do not need to market the products. Vendors perform all marketing and promotional roles. So, you save money that you would rather use on marketing affairs. Again, you already deal with established brands. Your work is only to facilitate the movement of the product from supplier to retailer to consumer.
Total control
The wholesale model offers you control over the sales. You have the power to determine the minimum and maximum ordering quantity. Also, you can decide to allow vendors to order any amount in case you want to boost sales or recruit new customers. With this aspect, it becomes easy for you to control sales and make certain forecasts in your business.
Low risks
Risk is another aspect to consider in a business. When you adopt the wholesaling and warehousing business model, you lower your risks. Your business deals with valid and reputable brands in the market. So, you do not keep items that the market does not need. Also, your inventory depends on the manufacturer’s production level and market demand.
Cons
High establishment costs
For you to launch a wholesale and warehousing venture, you need a huge capital. You must have real estate/warehouses in place. Apart from this, you will require an established inventory and logistics management system. All these require a large investment.
Challenges in dealing with suppliers
Wholesalers deal with different suppliers. Each of these suppliers has its terms and conditions. Sometimes, it is a challenge to manage these business partners and fulfill their requirements.
Conclusion
In summary, the wholesaling and warehousing business model is a concept suitable for organizations using the B2B approach. This model involves bulk buying and selling products to vendors at a discount.
When you venture into it, you enjoy low risks and marketing expenses. However, you must be ready for challenges in managing suppliers. You also require huge capital to set your foot in this field.
