Creating your own goods can become difficult once you begin attempting to scale your business. Small companies often notice they lack the technology, infrastructure, staff, and resources needed to expand and meet the demand for their product. In these situations, consider turning to a wholesaler to produce your goods so you can meet the needs of your customers and continue the smooth operations of your company.
Benefits of Working With a Wholesaler
Because wholesalers operate with bulk orders, they are typically able to offer the lowest prices on goods. Many of the discounts wholesalers receive on raw materials are passed on to whoever orders from them. This creates lower inventory costs and reduced cost of goods sold compared to if you were to make the good yourself.
Wholesalers may also have a catalog or other product listing from which you can order. Although these products may not be customizable, they may be more inexpensive alternatives for some of your other products.
Prices with wholesalers can often be negotiated. Because you are more likely to place larger orders with a wholesaler, a wholesaler will tend to foster a long-term relationship with your business. Therefore, customer service offerings, including negotiated prices, are frequently offered.
When selecting or working with a wholesaler, research dropshipping opportunities. This practice has the wholesaler produce a good and directly deliver the product to your customers. This is in contrast to standard operations where the goods are shipped to you, held as inventory, and shipped to a customer upon ordering. Under dropshipping agreements, you essentially pay to have the wholesaler handle all inventory and shipping matters. The remaining portion of sales revenue is retained by your company.
Dropshipping can be very beneficial as it results in less inventory management costs for you. This includes insurance, storage, inventory purchasing fees, loss on obsolete goods, and administrative costs to maintain inventory information. Ensure your wholesaler has the appropriate means of providing this function. Investigate what a dropshipped order would look like, including communication, correlating technological information, turnaround time, quality checks, personalization options, and shipping policies. In addition, understand the customer service aspect of the distribution service; sometimes, a customer will not even know another company is shipping the product, so it is very important to clearly define your shipping expectations.
Distributors vs. Wholesalers
A distributor is a company that purchases goods from the manufacturer and sells to a retail institution. Distributors typically do not correspond with the product’s end user; wholesalers do. Wholesalers tend to operate in specified niches, such as electronic components, while distributors take on more varying goods from different industries based on what their partnering manufacturers produce. When deciding between the two types of businesses, gauge whether you will be the end user and will provide customer support, and the diversity of your offerings.
A vital aspect to a wholesaler’s operations is logistics. Ensuring the right goods make it to the right location at the right time should be of utmost importance to your wholesaler. Research what supply management technology is used by your wholesaler including how your order is received, communicated throughout the business, and distributed. What types of shipment tracking are offered? Can you check the status of an order while it is being processed? What are the capabilities of changing an order after it has already been placed? Answering these logistical questions simplifies your business operations.
When meeting and negotiating with a potential wholesaler, understand the technology used and any plans to update the software or equipment in logistics planning. The wholesaler should have adequate staff to handle orders throughout the year regardless of seasonality; research employment levels to ensure logistics can be upheld. Understand how often maintenance occurs, quality control audits are performed, training is conducted, repairs are made on equipment, and reports are documented and analyzed regarding the wholesaler’s logistics operations.
Steps to Working With a Wholesaler
Before reaching out to a wholesaler, ensure items on your end are squared away. This includes having a fully operational business with a functioning product past the prototype stage. This product should be supported by market analysis, as it is important to know the level of anticipated demand for your good. Your company should have appropriate staff levels, storage capabilities, and other resources necessary to handle production increases.
Investigate multiple wholesaler options, including previous customer experiences, capabilities of the business, and knowledge possessed regarding your type of product. Gather a quote from each wholesaler you are considering. This includes time estimates and evaluating the simplicity of placing an order. Place small test orders with the three most favorable vendors. It is best to place these orders at approximately the same time to compare shipping, invoicing, and correspondence timing. Upon receipt of the goods, evaluate the quality of the product and accuracy of the orders.