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Are you planning to start your business and looking to understand a few terminologies? Perhaps you need some clarity on differentiating between a manufacturer and a wholesaler? This blog addresses all those concerns and queries for you. Let’s dive in together.
Who is a Manufacturer?
A manufacturer is an individual or company making goods for sale using machines, labor, and tools. They are also responsible for assembling final goods. A company or manufacturer uses these common types of manufacturing productions:
MTO
Make to Order is the type of manufacturing that allows the company to manufacture products based on customized needs. The manufacturing starts only after the order is received. Here, the wait time is usually longer and the customer agrees to it. The advantage of MTO is that you don’t create excessive inventory. I attended a seminar about manufacturing best practices when I used to work as a recruiter in a manufacturing staffing agency. We were told that MTO manufacturing is the most profitable type of production.
MTS
Make to Stock production refers to the traditional manufacturing process. Past sales state is used for forecasting custom demand and then production takes place based on that information.
The only drawback of this strategy is that the manufacturer might be left with too much or too little stock. Demand forecasts don’t always work.
MTA
Make-to-assemble is the type of manufacturing that also relies on demand forecasting t stock some basic components of a product. Assembling only starts after the place is placed. It is kind of a hybrid of MTO and MTS.
Customized orders can be placed but the turnaround is quicker as the manufacturer already has basic components ready. The drawback of this type of manufacturing is that the company/manufacturer may be left with a stock of unwanted parts in case no orders are placed.
Who is a Wholesaler?
A wholesaler is a person who buys a product in large quantities from the distributors directly. Some also purchase from manufacturers but this happens rarely.
These individuals are bulk buys, and placing high-volume orders get them discounts. Wholesalers provide store owners items for resale. They don’t deal with customers directly. They simply supply products to retailers.
Types of Wholesalers
Supply chain experts agree that manufacturers of 3 types. If you run a business, you might have to work with these three at some stage. Let’s have a look at them:
Merchant Wholesaler
It is an individual or business that handles most of the things themselves. They work with the supplier directly and buy large quantities of products. They also import and store inventory. Their prices are competitive.
They sell through online stores or retailers. A wholesale car dealership fits the example well.
Agents, Commission Merchants, and Brokers
They work on behalf of the manufacturers who can’t sell their products. These wholesalers play the role of a middleman. They are like salespeople for the suppliers. They receive a commission from the supplier whenever they make a successful sale.
Manufacturers
Yes, some manufacturers are wholesalers too. Those with large factories do that. If their product is hot in the market, instead of relying on wholesalers and retailers, they recruit their own sales team. They can maximize their profit margin by selling to the customer directly. The sale mostly takes place through an eCommerce website.
Difference between Manufacturer and Wholesaler
So long story short, wholesalers are the middlemen of the retail industry. They don’t design or produce the product, they buy them from manufacturers or distributors and sell them to retailers who sell them to someone else.
Shipment
Rarely do manufacturers ship something directly to customers. A wholesaler, on the other hand, keeps inventory and ships whenever an order is placed.
Display of All Products
Wholesalers today sell online too. No matter how they sell their products, they always show off whatever they have. Manufacturers sell through a middleman. They don’t display all
Customization
When you are buying from a wholesaler, you only have the option to choose from the products they have to offer or whatever’s in stock. If product X is available in 3 colors, these are your only options. Things are different when you are buying from a manufacturer. They accept customized orders. You can ask a manufacturer to produce product X in red color (if it wasn’t available before).
Conclusion
I have tried to make the difference between a manufacturer and a wholesaler clear and easier to understand for all you newbies. Once you start your online business and step into the field, these terms will make more sense to you.
If you are selling products, you will have to deal with manufacturers and wholesalers time and again. A streamlined employee onboarding process helps new employees perform their job well. Similarly, the more knowledge you have about these two terms, the better decisions you will make.