The functions of traditional wholesalers are as follow:
(i) To act as liaison between retailers and producers conveying the views of each to the other.
(ii) To remove from the manufacturer the burden of marketing his goods by taking bulk supplies from him, and setting promptly with cash. The risks of production are therefore greatly reduced, since it is now the wholesaler who is bearing the risks.
(iii) To act as liaison between retailers and producers conveying the views of each to the other.
(iv) To assume the risks of the enterprise begun by the manufacturer but which he has now relinquished. These risks are: (a) That the goods will not be needed because there is not demand; (b) that they can be disposed of only at a lower price than the cost price to the wholesaler; (c) deterioration; (d) theft and misappropriation, which are specially high when goods are in transit; (e) bad debts.
(v) To grant credit where required to retailers whose resources are limited, so that goods can be sold before payment is required.
(vi) To warehouse the goods, in such a may that they not deteriorate or be stolen, in the time gap before they are bought by the retailers.
(vii) To market the goods by advertising, demonstrating, or displaying them in ways appropriate to the class of goods concerned. This may also involve other processes such as packaging, blending, and branding.
Services to the Public
(i) As an intermediary between retailer and manufacturer or grower he conveys the views of each to the other so that complaints from consumers reach the manufacturer and grower and result in a general improvement in products.
(ii) By assuming the speculative function of buying goods when they are plentiful and releasing them when they are in short supply, the wholesaler enables the consumer to obtain a steady flow of goods throughout the year, at steady prices.
(iii) The convenience of the public is served by the increased number of retail outlets kept in existence to serve them against the competition of large-scale retail outlets which are only viable in town centres or at countryside depots where large car parks are available.
(iv) By specializing in distribution the wholesalers ensures that goods reach the consumer in the right quantities at the right times in the most economic way, so that the price to the consumer includes the smallest possible element of distribution costs.
Services to the Manufacturer
(i) By selling under his own brand name the wholesaler often relieves the manufacturer of the need to advertise his product.
(ii) The wholesaler removes goods in larger quantities as they are produced, thus clearing the production lines.
(iii) By warehousing the goods the wholesaler bridges the time gap between production and consumption, leaving the manufacturer free to concentrate on his specialized activities.
(iv) He eliminates the need for a marketing system with all that involves in terms of warehousing space, distribution network, sales staff, accounting records, and debt collection.
(v) By paying promptly the wholesaler reduces the working capital required by the manufacture.
Services to the Retailer
(i) He chooses a convenient situation and opens at convenient hours.
(ii) The wholesaler breaks bulk to a reasonable size, selling in quantity but not large quantities.
(iii) He often helps the retailer to meet cut-price competition from the multiple shops and canine stores by selling to him at cut prices, providing the retailer is prepared to accept a reduction of services. This usually means ‘cash and carry;’ no credit is given, and the retailer transports the goods to his premises in his own van.
(iv) He gives credit to certain classes of retailer, thus reducing the amount of capital needed by the retailer.
(v) In many cases the wholesaler operates a fleet of vehicles and delivers goods to the retailer as and when required.
(vi) By carrying stack which is readily available he reduces the capital and space required by the retailer. The retailer stocks only the goods that ‘turn over’ quickly. Slow moving items are ordered as required from the wholesaler.
(vii) The wholesaler displays a variety of goods from hundreds of manufacturer and demonstrates or displays them as necessary. At the warehouse the retailer can therefore see not only the lines he normally handles but the latest inventions and designs.
Position of the Wholesaler in the Chain of Commerce
Wholesalers are business who handles goods in the intermediate position between the producer and the consumer, but traditionally they have always dealt in large quantities, e.g. whole cheeses or whole carcasses. They have left the cutting up of whole ‘units into smaller quantities to the retailers.’
Since the transport and warehousing of goods is a very involved and lengthy process, it is not unusual for several wholesalers to be involved in the movement of the goods, handing them on from one to another. The term middlemen have been applied to these traders, since they stand between the producer and the retailer.
Evolution of the Middleman
Where production and consumption are carried on in the same locality there is usually little need for a ‘middleman’ to arrange the transport and exchange of goods. Middlemen before the industrial revolution were therefore mainly involved in the luxury trades, especially imported luxuries like furs, wine, and silk.
They were also a feature of the ‘staple’ trades, of which wool and spices were the most important. As the agricultural and industrial revolutions developed, and as transport problems were solved by the use of canals and eventually railways, the change to a more specialized production led to greater distribution problems. Wholesalers became involved in vast movements of goods.
Market-garden and agricultural production increased; meat, poultry, milk and milk products were available in greater quantities. Fishing and whaling increased, while the volume of manufactured goods rose year by year. New classes of wholesaler arose in the produce markets in the coal trade, in groceries, drapery, furnishing, ironmongery, and above all in the import-export trade.
Merchants, Agents, Brokers, and Factors
Some of these middlemen were mercers or merchants as we should call them today. A merchant buys the goods he handles and is therefore a true owner of them selling at a price which takes into account the original costs and the service rendered. Others act only as intermediaries between the producer and the retailer, selling the goods on a commission basis. Such a men are called agents. Strictly speaking, an agent is anyone who does something on behalf of another.
In commerce we call persons ‘having in the customary course of this business as an agent the authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods or to raise money on the security of goods.’
The two commonest types of mercantile agent are brokers and factors. The difference between them is a difference in the extent to which they handle goods. Brokers merely sell the goods for their principals, and delivery of the goods sold is left to be arranged later, for the broker does not have them in his possession.
The factor on the other hand is in possession of the goods, selling them for his principal, delivering them up to the buyer for payment, and rendering an account, less his commission for the sums due.
Types of Wholesaler
The pattern of wholesale trade is changing but the main types are as follows:-
(i) The Co-operative Wholesale society is the largest unit in wholesale trade, catering for the needs of the retail societies who are its members. Its influence extends further than the normal wholesaling function, into manufacturing, farming dairying, tea planting, and transport.
(ii) ‘Cash and carry’ warehouses operating in the cut- price general retailing fields. The emphasis is on self- service, absence of credit facilities, breaking bulk to the requirement of the individual retailer, convenience of opening hours to suit the retail trade and absence of delivery facilities.
(iii) Retailer-protection wholesalers operating in the cut-price grocery fields as voluntary groups. Such organizations as Spar Let and Wavy Line offer advantages to the small trader, in the form of favourable discounts, national advertising and services to promote goodwill.
(iv) Mail-order wholesalers sell direct to the consumer in his own home, eliminating the retailer. One of the fastest growing fields of wholesale trade, the mail-order houses is really general wholesalers on a national scale.
Their chief attraction to the consumer is short-term credit; the basis of their activities being the credit-sale agreement. This is a form of short-term hire purchase, and the 20-week payment period for nondurable goods.
Mail-order firms operate through “home agents ‘working on commission. In fact the system is now so widespread that almost every housewife is her own agent.
(v) Traditional wholesalers
(a) Large general wholesalers operating very large warehouses. Show rooms in suitable centres enable retailers to see the goods in comfort, but orders are filled from the warehouse. Commercial travellers are also employed in sales areas remote from the showrooms.
(b) Local wholesalers, operating on a small scale, and dealing in goods from the produce exchanges or as service and spares agents in the” consumer-durable fields.
(c) Regional wholesalers, operating on a small scale, and dealing in goods from the produce exchanges or as service and spares agents in the consumer-durable fields.
(d) Specialist wholesalers operating in a more limited field but carrying a detailed inventory in their particular sphere of trade.
The mass-production system depends upon producing in anticipation of demand. It is no longer necessary to order a pair of socks to be knitted for you, or to place an order for motor vehicle with a manufacturer. Millions of pairs of socks and thousands of motor cars are produced each month in anticipation of demand.
The heavy investment required has to be planned in advance to produce a certain output. It follows that whether the orders come in or not the goods will roll of the production line. Warehousing is the method used to store the goods until they are required. The demand may be seasonal, as with raincoats and umbrellas. It may be related to a particular festival, like the demand for greeting cards, decorations, crackers, gifts, and toys at Christmas. Fireworks are wanted for Guy Fawkes’ Day, or the 4th of July or Independence Day, according to custom.
The storage of manufactured articles between the time they are produced and the time they are used is in most cases an essential part of the use of that word until they reach the consumer. Just as efficiency is essential in the manufacturing process, it is vital in the distribution process.
The specialist wholesaler removes the responsibility of the warehousing process from the manufacturer, who is set free to concentrate on the technological processes and takes over the risks and the work of transporting the goods geographically and through time.
Organization of Wholesale Warehouse
A typical large-scale organization in the wholesale trade it is a Limited Company run by a board of directors, most of who are only part-time directors. The board exercises general control of policy, reviews trends in business and determines major modifications in the conduct of its affairs.
Day-to-day affairs are controlled by the Managing Director. Probably the Chief Accountant is also a director with full-time services to be performed. These two full-time directors represent the board in everyday affairs and report to the board where necessary. In emergencies they contact the Chairman, but ordinarily they report on the routine developments at the monthly board meeting.
The three aspects of the organization are:-
(i) The general administration department, controlling the organization itself, handing such routine matters as staffing, wages and salaries, training, etc.
(ii) The specialist departments, buying the various classes of goods, transporting them and storing them as they become available, receiving orders for them and dispatching them to their destinations.
(iii) The financial department, controlling the availability and employment of the capital of the enterprises and ensuring that profit margins are adequate.
The Specialist Departments
(i) Receiving department-on arrival goods are checked and discrepancies reported. The goods are then handed over to the warehouse department which will deal within them. This many mean merely that they will be stacked on shelves, or they may treat to preserve them, refrigerated perhaps, or some re-packaging and branding may take place. Forklift trucks may be use to handle the goods, and computerized systems of selection for sales orders may also be employed.
(ii) This is particularly helpful in fields such as pharmaceuticals, where one firm has established the 1,400 most frequently use lines on a computerized system. Uncommon items are picked out by hand and added to the order before it leaves for the packing department.
(iii) Buying departments-There will be degree of specialization here depending upon the classes of goods dealt with. The buyers have considerable responsibility: in certain trades they must be alert to changes in fashion and taste; they must know the best sources of supply, the trends in demands, the cost build-up of the product and the likely profit margin to be earned. Liaison within the sales departments is essential if expectations are to be realized.
(iv) Sales departments-The wholesale trade is highly competitive, and a firm must keep contact with its customers and be on the look-out for new business. Selling departments handle publicity, trade advertising, specialized demonstrations and features and also staff the warehouse showrooms to meet customers, show them lines that are available, follow up telephone inquiries, etc. A wide variety of systems is use for the processing of orders, invoicing, and assembly of the goods, packing and dispatch.
(v) Transport departments-Manufacturers today have provided a tremendous range of vehicles for particular purposes. Specialist vehicles promote distribution efficiency. A wholesaler picking up goods in bulk will e taking advantage of large-scale transport, motorway network, and railway freightliner services.
His deliveries to retailers will be making in smaller vehicles. On either side of the warehousing function is the transport function.
Achieving Economies in Distribution
(i) Stock Control-Another aspect of economies in distribution concerns the stock. Inevitably much of the warehouseman’s capital is tied up in stock. To some extent it is his function to hold slow-moving stock and thus save the retailer valuable space on his shelves. Idle stock is not profitable however, and anything the warehousemen can do to keep stock down to the minimum will increase the efficiency of the undertaking.
Computers can now be use in stock control, but for firms unable to afford to buy computer time to study the problem, the rule is to discover the stock replacement time, i.e. how long it takes for an order to be filled. Suppose it take two weeks.
The warehousemen must then keep fortnight’s average sales in stock. Whether he order at exactly that time interval may depend on the discount he gets. It may for instance pay him to order monthly supplies if by doing so very favourable rates of discount can be obtained. A reduction in the number of depots will almost certainly affect the total stock levels of slow-moving stock. Imagine a firm within 60 depots each serving a very small locality, which reduces the number or depots to 20.
The stock held, of a slow-moving line, will need to be only as little larger than was held at one the depots to cater for the needs of the much bigger area now being supplied. This will release capital tied up in stock and reduce losses by pilferage. Insurance premiums man also is reduced.
(ii) Fewer depots and larger ‘drops’-One effect of trim eliminate the wholesaler is an all-round effort to improve efficiency in the distribution network. It now seems that about 80 per cent of grocery turnover can be reached through only about 1,600 central buying points. This means that actual deliveries made to depots are fewer in number, and that each delivery is larger in size.
This change coincides with transport developments which are particularly suitable for larger-scale ‘drops.’
Container services both by liner train and by specialised road vehicles, faster and larger than in earlier days, are appropriate to this type of freight. Full utilization of vehicles also requires loading facilities at each end. .Another big development in the transport field is that more and more vehicles are being equipped with hoist apparatus that enables the driver to unload his vehicle by himself without needed for under-utilized lifting equipment at the depot.
We have had lifting tackle on ships for a very long while now, so that ships can load and unload in ports where the facilities are poor. This idea has now been carried over to the vehicle, with consequent improvements in turnaround time.
Transport has also been effective in eliminating some depots, since the improvement of roads and the motorway development increases the catchment area of each depot. A Few main depots therefore can deal with a region where formerly small depots were required.
(iii) Eliminating the small order
A retailer who finds that a 24-hour delivery service is available from a wholesaler will tend to order frequently in small quantities. This economizes in the use of capital tied up in the business and places a heavy burden on the wholesaler.
The wholesaler’s expenses on delivery, invoicing, accounting and debt collection rise correspondingly, and may exceed the profit on the small order placed. The proud boast of a salesman that his firm always delivers within 24 hours may lead eventually to a multiplicity of small orders. Ruthless pruning of these orders is the best way to promote the efficiency of a wholesale business, which is ideally a larger-scale business.
The Bad Reputation of ‘Middlemen’
The term “a middleman has come to have overtones of unscrupulousness attached to it certain political groups hold that ‘middleman’ is synonymous with ‘profiteer how true is this, and how did the situation arise
In earlier times communications were so poor and transport facilities so limited that merchants were carrying considerable risks when they undertook ‘trading venture.’ This old name for a commercial undertaking speaks for itself. Also in early days when credit facilities were less well developed and usury frowned upon, one of the middlemen’s main functions was to finance the undertaking. This he did by paying promptly for the goods supplied, and often in advance of supply, while he also waited until the retailer had sold the goods before receiving payment himself. For this reason it often arose that both producer and retailer were in debt to the merchant, or brogger, as he was called. The word brogger has changed into ‘broker’ and to have the “broker’s man in’ is to have one’s home sold up to pay debts.
Many of the early capitalists were middlemen who accumulated their wealth in the favourable position in which they found themselves. The man who is in the middle of a productive process is favorably placed to exploit others.
He can refuse to buy the product form the producer unless the price is low, and he can refuse to sell it when he has acquired it unless the price is favourable to him. Today the middleman is not able to exploit either the producers or the consumers in quite the same way, but he may nevertheless make quite enormous profits at certain times.
If he performs the speculative functions, buying in times of glut and selling in times of shortage, he may make tremendous profits out of a situation which has developed of its own accord and was not engineered by him. To the taunt of the politician that his enormous profits are causing the shortage, he will reply that the shortage is cause in his profits. His activities as a matter of fact are not causing the shortage, but believing it. He many also point out that if prices had fallen, so that he lost on the transaction, no one would have sympathized with him.
If the middleman is a little maligned here, it is perhaps regrettable. The student of commerce at least should see the point that the activities of middlemen, whether it is transport, warehousing or risk-bearing are all useful functions. Even if the middleman is eliminated someone will have to perform these functions, and to the extent that he is not a specialist, society will be the poor, not the richer.