Distributors play an important role in the trading system. They are the ones who distribute goods from producers or suppliers closer to consumers.
They will channel it through the underlying trade network such as wholesalers, wholesalers, or retailers.
This article will discuss more about the definition and role of distributors.
For you business students who are interested in doing business as a distributor, this article will be a basic reference for you. Housewives or students who run online businesses are also required to read it to add new insights.
What are Distributors?
The principal is the party who owns the goods, it can be a producer, supplier, or importer.
The network under it can be in the form of sub distributors, vendors, wholesalers, or retailers.
Distributor’s Functions and Roles
In principle, the function of a distributor is to distribute products so that they can be closer to consumers.
This party plays a crucial role so that the supply chain can run.
The following is a description of the role of distributors in the supply chain .
1. Taking Products from Principals
The dealer can get the product from the principal by making a purchase. The purchases they make are usually in bulk in order to get a cheaper price.
The dealer’s profit comes from the discount.
After getting the product from the principal, they can only distribute it to the entire distribution network under it.
2. Managing Temporary Storage
Before distributing the product to the underlying network, the distributor will first store the product in a temporary storage warehouse.
Usually they have warehouses in certain areas to facilitate the distribution of goods to more remote areas.
3. Sorting Items
Before distributing the goods, the distributor also plays a role in sorting.
Sorting aims to classify goods according to size, type, and quality.
Even though the principals already have quality control, they still need to do some sorting to make sure that the product is really worth it to reach consumers.
4. Product Information
The distributors will usually dig up information about the products they will market. It can be related to product type, specifications, composition, market price etc.
The information is then communicated to the public.
Every time there is a change in information, they are also responsible for conveying the update.
5. Transporting Goods
In the distribution process, the transportation of finished goods is a necessity.
The distributor’s role is to transport goods from the principal to the temporary storage warehouse. Then it transports it again and sends it to the rest of the network below it.
6. Running a Trade
The distributor is not a delivery service that just sends orders. They are also involved in trading transactions.
They buy goods from the principal at a lower price, then sell it to the trading network below it at a mark up price.
However, they will definitely give you a special cheaper price. Because the product will still be sold again.
They also play a role in playing the market price according to supply and demand.
However, the dealer is also involved in selling activities. They also have sales targets.
To increase sales, they also play a role in conducting promotions.
The more people who know the product, the hope is that the demand from consumers will be higher. If it is like that, orders from retailers to distributors will also increase.
What is the difference between Distributor, Supplier, Agent and Reseller?
You may be a little confused comparing distributors, suppliers , agents and resellers.
We will try to review the differences at this point.
Distributors are the principal parties (producers or suppliers) who are appointed to distribute their products. The appointment is of course based on an agreement.
The dealer acts on his own behalf. To get the goods they have to make a purchase of goods first.
You certainly often hear the term sole distributor. This refers to the distributor who gets an exclusive contract from the principal as the sole implementer of the distribution of goods in one country or a certain area.
Literally, the supplier means the party who provides an item.
In the context of production, suppliers are parties who provide raw materials for producers. Usually in the form of raw materials that will be processed by the producer into a finished product.
An example of a supplier in that context is a supplier of raw materials for t-shirts.
In the context of trade, the supplier is one of the principals. The producer principal will authorize the supplier principal to appoint a distributor or agent who will carry out the distribution of the product.
The agent is a representative of the principal who appoints him. This party carries out the distribution on behalf of the principal.
Therefore, pricing is in the hands of the supplier. Agents are not entitled to set their own prices. This is what makes it different from dealers who have the right to mark up prices.
In practice, agents do not buy goods like dealers. Agents only act as intermediaries for principals and consumers.
When the consumer places an order, the agent will forward it to the principal. Delivery of goods to consumers will be the authority of the principal and consumers will usually make payments directly to the principal’s account.
Consumers in this context are usually wholesalers, retailers or other trade actors. Although it is possible that end-users also place orders to agents.
Agents carry out their activities on a commission basis. The commission value for the agent is usually less than the discount for the distributor.
The term reseller has become popular since online business began to become a trend. Its role is like a retailer who sells goods directly to end-users.
Resellers can get goods by buying goods from suppliers, distributors or agents. Generally, they use various digital platforms to carry out marketing and sales transactions.
The dropshipper does not have stock of goods like resellers.
They only run marketing activities with product photos.
If there is an order, they will contact the supplier or distributor to send the product to the consumer.
What is Distributor Financing?
To help distributors make purchases to principals, banks usually provide “Distributor Financing” services. Then, what is distributor financing? Distributor financing is a bailout service from banks for distributors.
With this facility, the principal will receive payment for the purchase of the product by the distributor according to the due date.
On the other hand, the distributor will get a payment term to help with working capital turnover.
To be able to get this facility, the distributor usually has to get a recommendation from the principal and register a checking account at a bank that works with the principal.
Distributors: Bringing Products closer to Consumers
In the trading system, distributors are one of the most important parties to be able to distribute products to consumers.
They usually already have a trading network under them such as wholesalers, wholesalers, wholesalers, retailers, and even resellers. So, this party does not have to make direct sales to end-users.
Distributors can get products by buying them from manufacturers or suppliers. They will get a discount for buying in bulk. After that, the determination of the selling price to the market will be their right.
Distributors usually sell goods at lower prices. To get higher profit margins , you can seek access to direct distributors.
Hopefully this article can add new insights for those of you who want to do business independently.