The Value of Retailers in a Supply Chain
The supply chain—typically made up of the manufacturer, the wholesaler, and the retailer—make and deliver goods and services to consumers. Although the wholesaler and the retailer claim to add value to the consumer, as a consumer, wouldn’t be easier and cheaper to cut the middlemen? Not necessarily.
Focusing solely on retailers, they add value by:
If each manufacturer had its own store, consumers would experience a great deal of inconvenience by having to go to many stores to buy the groceries needed to prepare one meal. The assortment provided by retailers like Home Depot or Walmart makes one-stop-shop possible—a very compelling value proposition for this one component of the supply chain. (We’ll also examine examples like Apple, a manufacturer which also undertakes wholesaleing and retailing activities.)
To minimize transportation costs, manufacturers and wholesalers typically ships in bulk to retailers. Without retailers, consumers would have to purchase goods in large quantities from wholesalers. In most cases, buying 300 one gallon milk is not practical—unless you have room to refrigerate a large quantity of milk and are able to consumer that amount before expiration date.
As illustrated above, keeping a small inventory of products at home is often the only practical option. However, this would only be possible if retailers are effective at holding inventory so that they’re available to consumers “on-demand”. In the event, your local grocery store is constantly at-risk for being our of milk in two-month stretches, consumers would be inconvenienced by either driving a further distance for milk or storing milk in larger quantities.
Retailers also add value to consumers by providing services to make it easier to buy or use the products consumers buy. For example, in our increasingly digital world where not everyone will be digitally savvy, Best Buy provides 24/7 support through its Geek Squad services. Likewise, consumer electronics retailers like Best Buy make it easy for consumer to test and evaluate products before purchasing them. (We’ll examine how the lack of ability to give consumers an opportunity touch-and-feel the product is often a challenge of online retailers.)
As you embark on your journey as an entrepreneur or small business retailer, consider these principles of retailing before building an ecommerce site.
Every week, Michael blogs about selected topics in retail and ecommerce. If you’d like to see him go in-depth into this particular topic, simply follow him and reblog this post.
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