For shops that sell goods, product inventory is a vital part of developing a successful business. In a world where trends are rapidly evolving, understanding your customer base and product trends can often be critical to ongoing success.
As the world has become increasingly interconnected online, an ever-increasing number of stores are looking to go it alone - sourcing products directly from suppliers and shipping them directly to stores. While this may eliminate the role of middlemen from product transactions, what are the consequences of doing so?
Let’s explore the world of retail middlemen, their vital role in the retail product landscape, and their ability to help understand complex product segments, such as wholesale mobile accessories and other products. As we’ll soon discover, the benefits of using a middleman are often unrecognised by those who choose to go alone - often with catastrophic business consequences.
Acquiring Inventory - Direct or Indirect?
Online commerce has transformed significantly in the last three decades. Gone are the days of simply sending a completed product form via post; today, businesses have a range of channels and options for acquiring products.
There are two main ways to acquire inventory - direct or wholesale. Direct inventory acquisition typically occurs through developing business relationships with overseas suppliers - reaching out to a firm and agreeing to establish a particular volume of product at a specific cost per unit.
This is evident with large businesses like global tech powerhouse Apple - to produce products like iPhones, the company needs to develop direct relationships with many companies that can help make their product. These relationships are extensive - for example, creating custom computer chips, screens, and even packaging requires maintaining extensive relationships with hundreds of various suppliers.
Wholesale purchasing is an alternative to developing direct supplier relationships. While it’s commonly seen in retail, fresh produce procurement is a more widely known example. In a wholesale relationship, instead of developing direct purchasing arrangements, a business purchases stock and goods through an intermediary - known as a wholesaler.
The Challenges of Direct Acquisition
There can be many challenges to developing a working relationship with manufacturers. Consider, for example, the considerable expenses it may take to set up manufacturing lines, specifically for new or custom-made products. Direct purchasing can be challenging for small stores or businesses that don’t have the means to pay for such expenses.
Additionally, there are elements of risk to consider. Suppose you have a single manufacturer for a particular type of product. How will your business manage if that business has to deal with shortages of raw materials, organizational disruption, or other potential challenges?
Manufacturing can often incur additional costs. For example, if a product batch is produced incorrectly, a manufacturer may be forced to absorb the costs or pass them on to their customers. This is typically not ideal for stores that already operate on small margins.
Direct acquisition can pose many challenges - even for the savviest business owners. As a result, many small businesses look to the world of middlemen - looking to get the best deal for the products they’d like to sell.
The Role of The Wholesaler
There are a number of different types of middlemen that can exist in supply chains - from wholesalers to distributors; each has a role to play in supplying goods to a business.
When you think of a business middleman, who do you think of first? For some of us, a wholesaler comes to mind. They offer a fundamentally different relationship than direct purchasing - instead of building up a supply chain, a wholesaler can help you get the products you need.
Instead of going through a manufacturer or producer, a wholesaler typically has relationships with a range of suppliers or manufacturers and offers a curated selection of products. Depending on your business's needs, this can be advantageous.
How Can Middlemen Benefit a Business?
There are a range of situations where engaging a middleman can benefit your company. It’s important to recognise that product inventory is just one part of a business - in order to succeed, you need to understand a range of different business areas.
Being versatile and understanding all areas of a business can take time and effort. It doesn’t matter if it takes a hundred, a thousand, or even ten thousand hours to master a skill; just imagine the time it takes to master all the skills necessary to run a successful business.
Having a middleman in your corner can be incredibly beneficial for a business. It provides business owners with market knowledge and expertise that isn’t ordinarily available. Middlemen can also make it convenient - opening the door to wholesale opportunities that may not be available elsewhere.
It’s good to think of middlemen a little bit like a librarian - they’re knowledgeable about the products they’re promoting, can point you in the direction of things you may never have considered, and can also provide helpful insights into what’s popular or trending.
A Changing Retail Environment
Consumer retail has changed dramatically in the past two decades. There are now a range of ways to purchase products and inventory for stores - each with its advantages and challenges. This constant evolution in retail can sometimes make it difficult to keep up with current trends - but it’s also an opportunity for savvy shop owners.
Further up the supply chain, distributors help get products out and about, allowing manufacturers to focus on producing quality products. For example, a distributor may help broker deals between manufacturers and wholesalers.
In recent years, eCommerce platforms have also begun to emerge as a kind of pseudo-middleman. Platforms such as Amazon and eBay sell billions of dollars worth of products each year. Some entrepreneurial businesses take advantage of this by purchasing bulk products to sell in their physical stores; however, that can have its own challenges.
The world of retail has changed immensely in the past hundred years. From general goods stores to the rise of the big box outlet, supply chains have evolved and transformed as changes in technology, transport, and product development have revolutionised the way products are manufactured and distributed.
In a supply chain that is constantly changing, the role of a middleman has evolved. While the days of the traveling salesperson are dwindling, the future for wholesalers looks brighter than ever as they look to support a new generation of entrepreneurs and shop owners.