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How wholesale works, why it should live, and why - should die

Since I have been working with B2B for almost all “entrepreneurial” careers, let us tell you how wholesalers work, what problems they face and how they are solved. Why they should live and why they should die.

I regularly see a misunderstanding of online stores and retail stores of my suppliers. I believe that this is because they themselves were not in the shoes of wholesalers, and therefore do not understand their problems, and they are significantly different from the problems of B2C.


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What does the “wholesaler” do, and why should he live?

Usually the wholesaler is a trading or trading production company, so I will write in the context of this definition. The most interesting thing is that for a retail with several stores, the internal distribution center is usually its internal “wholesaler” and its work is very different from the work of the “last mile” stores.

The wholesaler usually has agreements with several large distribution companies or works directly with the manufacturer. Sometimes - on exclusive sales in a certain territory. The main point is that, unlike the distributor, the wholesaler can provide a wide and interchangeable / complementary range from various suppliers. An example is the supply of Chinese equipment to the territory of the Russian Federation. The same company can supply products from both China and Russia, America, Israel, and even do something by itself.

The main process of the wholesaler's work is to collect this whole range at home, importing goods, storing them, and working directly with companies that sell goods further along the chain to the end user (consumer). The wholesaler can work with the end-users (consumers) himself, but usually, they give no more than 20% of the total turnover, and work with them proceeds according to the residual principle.

It happened so that the wholesaler occupies the niche of the “middleman”, taking most of the hemorrhoids along the chain of product delivery to the consumer for himself - which is interesting for all participants. For a manufacturer / distributor - the need to work with 100,500 “last mile” contacts (retail) is removed: import, logistics (transportation and storage) and knocking out money and work with whining every little thing - for them the work is concentrated in one company with a few ground ones by customers.

A key plus for the supplier is predictability and stable supply volumes. From the "last mile" fuck wait - when and what they are ready to buy. This is taking into account the fact that the period of preparation of the goods can be a year and you need to know in advance for the year how much to manufacture products (purchase materials, load capacities, etc.). The same nuance is that retails do not have the volumes that are interesting to the plant. Even if the retail is large, the volume of the individual order for the plant is still small - because the plant provides only one type of product. That is why the plant is often ready to work with retail, but only with a larger mark-up than a wholesaler - therefore retail prices and wholesale prices are divided.

For retail, the wholesaler is access to a wide range of products from several manufacturers, availability of the required volume of goods at an adequate price, availability of goods for purchase "here and now", the goods are sold by customs clearance. Often the wholesaler gives a deferment of payment.

It is important to understand that if in offline retail the success formula is “three L” (although it is already less relevant), then wholesale is much more difficult, which I would formulate as “AVLTPL”: Assortment + Volumes + Logistics + Turnover + Planning + Loans.

In fact, all other features of the wholesaler's work flow from these components:

1. Assortment - assortment. The wholesaler works with a wide range of products from various suppliers. A special case of the "wholesaler" is vendors, distributors and dealers who can work on a limited range. The difference is that the wholesaler does not have exclusive distribution contracts from the manufacturer, and he himself can work as an intermediary between the distributor and the retail. In our experience, the average wholesaler has an assortment matrix starting from 5,000 items.

2. Volumes - volumes. The wholesaler works in large volumes and only on large volumes of goods flow. If the wholesaler does not have volumes, it is a dead wholesaler. At low retail volumes, it will be easier to work directly with the plant, saving on wholesaler mediation. Therefore, in this case, the wholesaler, as an intermediary, needs to strongly try to justify the purpose of his participation in the supply chain, giving some additional value: logistics, customs, warehouse, assortment, delay. Volumes are not only good and pleasant, but also large financial investments, which leads to a host of other problems.

3. Logistics - delivery closer to the point of consumption, storage of goods for the availability of goods "here and now" for customers, customs clearance. Often it is the hell for the wholesaler and the biggest cost point. It is necessary to have (in the literal and figurative sense) customs officers, transport workers, a warehouse closer to the places of purchase (which is very expensive to maintain), the staff who will make it work (and not steal) in some way. Moreover, the warehouse should be available for potentially large volumes with a margin, as the wholesaler must keep a wide range and still have an insurance reserve in case of supply disruptions. It is even more interesting if the wholesaler has goods with pronounced seasonality, when there is not enough space in the high season, and the warehouses are half-empty during the low season. Therefore, trying to pick up the range so as to level the seasonality in consumption.

4. Turnover - the turnover of goods. If the wholesaler has large volumes and low turnover of the goods - the wholesaler needs to have a huge warehouse and an endless financial leverage. The faster the goods turn around, the faster and more the wholesaler earns (he works only on the rapid turnover of goods). The ideal spherical wholesaler from the chamber of measures and weights - the goods are sold directly from the factory, delivering it directly to customers immediately, without keeping the goods in stock. Any brakes in the process of turnover of the goods - this is pulled out of money turnover. Because if a wholesaler bought a product and did not sell it, then, firstly, he spends resources on storing it every day (storage space, accounting, personnel), and secondly, he took money out of circulation into a recumbent product, which with limited leverage, it means that he cannot purchase a new product for another “turnover”. Here the problem of illiquid assets arises - when a product withdrawn from circulation turns to be a dead weight. Given the cost of storing it, it is easier to give it to someone than to keep it.

5. Planning - planning. The big problem of wholesalers (as well as any participants in economic activity) is limited resources. On a large assortment, with large flow of goods, you can get big profits. But for this you need to have a large financial leverage, which, naturally, no one has. Because you have to narrow the field of activity of the company, concentrating on a limited range and a certain market share. Choosing an assortment is, if not strange, not only the opportunity to sell it, but also the opportunity to buy it. Unlike retail work, where the largest hemorrhoids are concentrated in clients, wholesalers have the most problems not only in how to get more, but also in how to ensure current and future sales of goods. The main difficulty is that retail usually wants the goods "here and now", but the vendor is ready, of course, to supply the required volume of goods, but only through conditional "six months (excluding delivery and customs)." Therefore, the wholesaler, buying volumes from the manufacturer, must: firstly know that he will sell this product in six months and to whom; secondly, to have money to buy the lot from the manufacturer; thirdly - to have “logistics” in order to deliver the purchased goods to the point of shipment to retail. Now imagine this problem in the light of the problems and the size of the assortment, volume and demand for the turnover of goods. If online stores now everyone wants to work according to the drop shipping scheme, without taking on all the above problems, then the wholesaler’s task is to ensure his work so that retail can work according to this scheme: so that the right product is available in stock when retail has requested it. And the retail does not matter that this product had to be purchased six months ago and with a grief in half to take it and store it in anticipation. And the fact that the goods in the coming days are ready for transfer to the customer is only the merit of the good planning of the wholesaler.

6. Loans - loans and deferred payments. This whole scheme does not work if the wholesaler does not have an affordable leverage. Since the time of purchase of goods and the time of sale of goods has a large time lag, the company needs a loan in order to have working capital for the purchase of goods. To get it - the company needs to prove that it can sell this product at the scheduled time. In the case of the stable operation of the entire supply chain, the credit organization that provides this leverage is often the manufacturer himself, taking an order without prepayment and shipping with a deferred payment. The feature of work for supplying retailers is included in this piggy bank, when the wholesaler (vendor / dealer / distributor) already gives credit to the buyer and ships him with a deferred payment. At this point, there is an acute question of financial planning and budgeting - there are always specialists in this profile in large wholesale companies. The point is that there comes a moment X, when your buyers still owe the wholesaler, but the wholesaler himself must already purchase a new batch (which he will sell in six months) and pay for the previous lots - the so-called. "Cash gap", and an important part of planning - to prevent the emergence of such kind of gaps. Because a partially paid consignment of goods means that in half a year there will be less goods than needed, which means that retail will have less than necessary, which means there will be less incoming money for a new batch, and so on down the cycle. It is important to highlight the most priority directions of money infusion to get out of such a cycle. That is why in large companies conduct the processes of budgeting and treasury - to clearly and in advance to understand exactly when the ass is planned and how they will try to avoid it or deal with it. Planned ass is part of the competent work of any company, and allows, for example, to apply for factoring / credit in advance, or to cut off the delivery in deferment.

As you can see, then, in my opinion, the main competence of the wholesaler is not creative marketing and the ability to push the client, but long-term routine planning of goods movements and budgeting. The work is going purely on the back - the more he drove through him - the more settled on the bottom.

The problems of wholesalers stem from their features. These problems are often found in retail companies, but the wholesaler suffers from them more:

1. The inaccessibility of leverage in one form or another. No credibility from lenders. Or, more often, the limit of available funds is simply exhausted - you need to buy a new consignment of goods, but not for that, because you have not yet paid off the old one, or the previous one went into illiquid, or the previous batch bought too much and did not sell out the whole (problem of surplus ).

2. Twitching customers. On the one hand, this is a situation when some medium-sized retail client decided to actively invest in marketing, and his SUDDENLY flooded sales, which need to be ensured either to the detriment of other customers (for not the planned volumes), or through the intensification of work with suppliers. And on the other hand, when a regular customer suddenly decided to EXTREMELY turn the direction of work with one assortment (switch to another or close altogether). It does not bother him much that the wholesaler planned and paid for certain volumes of goods for him, and this happened a few months ago. All this is subject to the problem that these clients often work through a deferred payment, and they stood in a financial plan, which needs to be reviewed both in organizational and real terms. There are also situations when a client says “No money. If you want, take everything that we have not sold to ourselves. ” Often, on the part of a small retail customer, there are relatively unqualified suppliers (and with you, as a wholesaler, they are the ones who will engage in dialogue) and order, don’t understand what, and don’t understand when, and often EXTREMELY - which spoils the key parameter of the wholesaler’s work - predictability.

3. Pulling supplies. The same as described above, only begin disruptions to the supply. They paid for the goods, but they are not ready, or they are ready and not all ("... take the container floor ..."). Or the goods sent by the supplier, but stuck at customs. Or introduced the system Plato, and began dancing and dancing. Or drunk and sleepy driver killed himself on a pole with all the cargo. The consequences are often more pitiable than when the client jerks, because The situation is reflected in a wide range of clients. For the disruption of retail sales are fines, or simply a loss of the contract. It directly affects the planning and budget process.

4. The human factor. Errors in the work with the assortment, contractors and work planning. If a small company sells spare parts and ordered the wrong headlamp on a Mercedes, then this is unpleasant, but not fatal. Worse, when the wholesaler, having incorrectly assessed and predicted demand, the supplier ordered such 300 pieces, and all are left-handed. Illiquid goods can lie in stock for years, taking up space and blocking working capital, which is blood and air for the wholesaler. In the same way, wrong planning leads to wrong budgets, which leads to cash gaps and supply and sales problems. An interesting situation in the wholesale trade (especially at the initial stage), when the stellar sold leaves the company, and opens its new one with mahjong and geisha, taking away the client base. They can even the whole department. Other problems with working with clients are quite prosaic - it may be incorrect work with customers in such a way that they leave. For an average wholesaler with 10,000 customers, leaving 1-2 customers, if they are not key, is usually not noticeable in the short term, but in the long run this greatly influences the planning process. And, since the process of ensuring is long enough, although the order of goods takes place on one customer base, when the goods arrive at the warehouse, it can actually come under a different customer base and another demand. These things need to be closely monitored, otherwise there will be no sudden problems with the budget.

5. The inability to grow without structural changes in the company. Unlike retail, where you can grow only on the scaling of the number of sales and the transition to a boring CRM. A wholesale company, while growing, requires significant perturbations in the staff and tools used. If - for retail the proportion is that for 1 suppliers there are 5 sellers, then for wholesale the situation is quite different: for 1 active seller there can be 2 suppliers. Because more important is not the growth of the client mass, which, with stable work, usually goes in a passive manner, as adequate routine work with existing customers and ensuring their needs. Therefore, for wholesale, in addition to the built-up sales department, it is necessary to build entire structures of work with the delivery, storage and purchase of goods - all in order to ensure uniform uninterrupted movement of goods flows with the maximum available speed through the company (turnover). The problem is that if the sales department can work with a large assortment without much complexity and is relatively easy to scale, and average professionals are available and trained, then the supply in this part is a rather complicated process. This is due to the fact that many participants are involved in the procurement process (supplier, transport companies, warehouse, sales department, etc.) and many factors are involved (time factor, formation of sales forecast, availability of goods at the supplier’s warehouse, ability to purchase goods, availability space, availability of transport, the ability to store goods, the availability of finance for its acquisition, the economic feasibility of its acquisition and others). Those. The process itself is quite complicated, but the qualifications of the people who produce it are mediocre enough that it leaves its mark. Plus, starting from a certain point, the company's business process bandwidth simply comes up against the human factor, and there comes a time when the supply business process does not scale with staff growth - the company can hire 5 more suppliers, but it will not be better. These problems can be solved only through automation and optimization of processes in the company.

A wholesale company, unlike a retail company, does not have the ability to respond quickly to changing market conditions, and therefore, it is vital for it to have a clear, at least medium-term, plan. And any actions aimed at a sudden change of this plan are a problem for the company. At the same time, any actions aimed at compliance with the plan and its improvement are a boon to the company.

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Source: https://habr.com/ru/post/298684/


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