Many businesses specialize in the sale of products to consumers, but rarely do retailers offer products that they themselves produce. Instead, there is a production pipeline that consists of multiple steps that get a product from point A to point B. Establishing a supply chain for your business is a crucial step, as the reliable and affordable flow of products is the cornerstone of a profitable business.
Manufacturing is the first step in the production pipeline, and it consists of converting raw material into usable products. However, that description isn’t all-inclusive, as farms offer manufacturing of a sort, but farmers harvest crops and animal products. Much of manufacturing takes place in factories in which the process is performed by automation. Most often, manufacturers sell products to distributors who then work with wholesalers and retailers.
Distribution is the process of getting assembled products from manufacturers to the next destination, be it wholesalers or retailers. Distributors operate on a value-added model in which they provide added benefits for buying products from them. Freight trucks and cargo planes are often used for distribution, as are cargo ships and hopper bottom carriers. Each of these vehicles has its strengths and weaknesses, so the vehicle of choice will depend on the cargo being towed. Distributors can ship products directly to retailers, but they often sell to wholesalers.
Wholesalers are similar to distributors, but there are a few key differences. Wholesalers often make a profit by buying products from distributors in bulk and in a wide variety of product categories, a business model that has a few advantages. Primarily, wholesalers save money by ordering products in bulk, as bulk discounts are a common service offered by distributors. Diversifying their stock provides the additional benefit of competing in different markets with no additional hassle. Supermarkets make ideal clients for wholesalers, as they tend to offer a similarly robust selection and get higher traffic than many businesses.
Retail stores are often the final destination in the supply chain and the step at which products are sold to consumers. Retailers have the option of buying their stock from any of the previous steps, but the most lucrative option is buying from wholesalers because of added value. Keeping a business in stock is necessary to keep up with sales, which makes the previous steps just as essential.
Owning a business involves a balancing act, as cash flow and inventory are two of the biggest factors in its success. To make a profit, a business needs a supply chain that provides the products you need at a reasonable cost. Using these tips, you are ready to find the right supply chain for your business.