A wholesale business purchases products from manufacturers in bulk at a discounted price and sells them to retailers. A wholesaler also provides discounts to retailers on buying in bulk.
Increasing competition, new market disruptors, and the adoption of new technology have brought some challenges to the wholesale industry. A lower profit margin signals that you have an inefficient workflow resulting from not considering the present challenges in the wholesale business. But what are those biggest wholesale challenges?
In this guideline, you will know about some wholesale distribution challenges and how to prepare for them, and some hidden dangers down the road.
Challenges in The Wholesale Business
A product has to go through a lot of processes from manufacturers to the end consumers. Wholesale distribution is an important part that keeps these processes transparent and efficient. In the ever-changing marketplace, wholesalers are facing increasingly complex challenges. Here are the top 7 challenges in the wholesale business –
- Improper Inventory Management
- Taking Liabilities for the Products
- Measurement of Product profitability
- Dealing with Property Damage
- Imbalance in Supply and Demand
- Not Adapting to the Technology
- Improving Business Growth
#1 Improper Inventory Management
One of the top challenges a wholesaler has to deal with is inventory management. It is an unending cycle that starts from acquiring products to storing and selling them to retailers in bulk.
Two extreme sides of the supply chain of most businesses are shortage and overabundance of products. Shortage of any product fails to meet the customer demand and is a reason to risk your customer base.
Overstocking increases the maintenance cost. In fact, this will be a recurring cost if the inventory stays for a long period in the warehouse. To prevent this problem from occurring follow the below instructions –
- Identify old, fast, and slow products – This is the first way to avoid overstocking and understocking in inventory management. You can always keep stock of a product once you know the product is a fast-moving product because of its high demand. For the slow-moving product, offer discounts and minimize the production or acquisition of the product. And make sure you do not deal in large quantities with the obsolete product.
- Streamline your delivery process – Monitor closely the packing and shipping process of products from the warehouse. Is the product readily available at the exact location in the warehouse when you need to deliver it? If not, then fix it to avoid delays in your packing and shipping process.
- Track when to reacquire a product – Identify the reorder level of a particular product. For a specific product, find out the minimum inventory level that triggers the reordering. This ensures to always have products in stock and fulfills the customer demand.
- Know your minimum order quantity (MOQ) – Suppliers set a minimum order quantity of a particular product that requires more manufacturing cost. As a wholesaler, dealing with this kind of product is tricky. Storing this kind of product in the warehouse for a long period requires more costs. If you are getting orders of this kind of item in less quantity, set a pack of that item so that your buyers buy in larger quantities. This will help to avoid low-budget clients and accelerate your profit margin.
#2 Taking Liabilities for the Products
A wholesaler acts as a middleman between a manufacturer and the retailers. Wholesalers do not manufacture the products themselves. But while transporting the products from the storage to the retailers, a wholesaler is to ensure the quality of the products is preserved.
Some environmental facts might damage the quality of the products. For example – if you are delivering any dairy products, ensure that heat does not damage your products.
To ensure that quality products are delivered to the retailers, follow the below points –
- Prepare a backup plan in case any defective products reach the retailers.
- Take precautions to avoid any unexpected transportation factors like rough roads.
- Ensure that you do not have faulty storage management.
In most cases, retailers blame the wholesaler if they get defective products. So, as a wholesaler, ensure you do not lose your reputation for any faulty product delivery.
#3 Measurement of Product Profitability
Wholesale business owners sometimes fail to measure the profitability of a product. There are some costs that may not be easily visible. For example – the manpower cost to move any inventory around, storage cost, delivery, and transportation cost. So, track these hidden costs to find the exact profitability of products.
To avoid poor visibility of the product’s profitability, compare the manufacturing cost and selling price of goods accurately. Include all other costs like manpower, delivery or shipping, and other hidden costs along with the manufacturing cost while measuring it with the selling price. Identify the profitability on the basis of brands or categories of products. For example – under brand “A” there might be various products. Now, measure the total profitability of brand “A” which requires the individual profit calculation of each product under brand “A”.
#4 Dealing with Property Damage
One of the common problems that wholesalers face is property damage. Property damage might occur due to the following reasons –
- Fire breakout
- Water flooding due to heavy rain.
These unexpected occurrences can damage the wholesaler’s stock in a matter of moments. To avoid property damage make an insurance plan and an emergency preparation plan.
#5 Imbalance in Supply and Demand
For many business owners, the imbalance of the supply of goods according to necessity has been a constant issue. In the supply chain process, a wholesaler receives an order from the client and places the order with the supplier. Then the supplier confirms a delivery date. The wholesaler receives the goods from the supplier and delivers them to the customers.
But the process gets complex when a customer requires a set of products immediately but the wholesaler is unable to deliver them in time. This happens when the supplier needs a lead time to deliver products to the wholesaler. So, this mismatch leads to overstocking or a shortage of products.
How can a wholesaler get rid of this challenge of distribution?
- Backorder a product – Backorder means an order for a product that can not be delivered at the moment due to lack of supply. A customer requires a product but you have zero stock. In this situation, simply backorder the product immediately to cater to the demand.
- Track your inventory management properly – Keep a proper tracking of your inventory which is going to be out of stock and which is abundant in storage.
- Know your suppliers – Rank your suppliers on basis of quality and lead times. This ranking of the suppliers will help to choose your supplier in an emergency time.
#6 Not Adapting to the Technology
Due to several market factors, the wholesale industry is undergoing a massive change. Many modern wholesale businesses are overcoming these challenges with enterprise technology while some distributors are found to be laggards in the adoption of new technology.
To survive in the competitive wholesale industry, you have to adapt to new technologies. Adapting to these technologies might require a bit of investment, but it will obviously help to build a higher profit margin for your business. Suppose you have an online wholesale store on the Shopify platform. A wholesale or bulk order app can easily solve your order process. Here are a few more technologies for wholesale distributors –
- Use good enterprise resource planning (ERP) software to manage your supply chain, customer relationships, and finances.
- Leverage with perfect inventory management software that will track your individual inventory costs.
- If you sell multiple variants of products, install a one-click bulk order application on your online store.
#7 Improving Business Growth
Every business wants faster growth. One of the biggest challenges in the wholesale business is the slower growth due to not having enough relationships and business expansion.
What should you do to improve your wholesale business growth?
- Expand internationally – Reach out to more customers and do not keep your contacts limited to a few retailers. Do not recycle the same contacts that were collated many years back. Build contacts locally as well as internationally.
- Get an online store – In the present digitalized age, it is difficult to keep your brand identity limited to your office. Explore new platforms to connect with more people. Create an online presence, get a website and make space in your website where customers can discuss your products.
- Create an effective email list – Email marketing is a great way to market your products. Know how to create an effective email list to accelerate your marketing.
Time, resources, and an easy ordering process are the key to running a successful wholesale business. To stand out from the competition, you must find a smarter way to face the current challenges in the wholesale business.
Know which goods are making more profits and which items are not. Make an effective strategy for less profitable products to make them more profitable.