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Supply Chain 101: Basic Vocabulary

Posted on February 24, 2009 by Archives

Stepping into the realm of supply chain I knew there would be a learning curve.  The first lesson I learned? Basic Vocabulary.

I was sitting in a meeting when I began to hear words such as: Manufacturer, distributor, wholesaler, supplier, drop-shipper, and end user/consumer. Not only was the conversation over my head, but my experience in customer service did not even lend a helping hand as to the differences between these roles in supply chain.  In addition to recognizing and understanding the roles that each play in the supply chain cycle I also needed to realize that these terms may be different across channels, lucky for me we are a pure play internet retailer, which means for the time being I truly needed to understand supply chain roles in relation to eCommerce.

Working in customer service at PlumberSurplus.com, I knew of manufacturers like Kohler, Delta, Rheem and others that are among our Top Sellers; but I didn’t know what the differences were between a distributor, manufacturer and a wholesaler. What about those that bought American Standard and re-branded it? Are they a manufacturer? Can we buy directly from a manufacturer? What is the difference between a manufacturer and a brand name? I sat through the meeting praying that no one would ask me a question. When I got back to my desk, I quickly went to Google, hoping for a quick synopsis that would allow me to at least understand my notes from the meeting. Surprisingly, I could not find one single post that explained the basic functions, differences or attributes of these supply chain relationships.

So… here you go. My list is not all inclusive, as I am still on that learning curve that I mentioned; hopefully, if you are ever in a similar situation you will be able to at least get the gist of the relationships here.

  • Manufacturer: The word manufacture comes from Latin roots meaning “to make by hand”. A manufacturer turns raw materials into finished goods. Classic American examples include: Ford, General Motors and Boeing.
  • Brand Name: A manufacturer can have more than one brand name. A great example of this is General Mills cereals. General Mills is the manufacturer, while Cheerios, Kix, and Wheaties are the name brands.
  • Manufacturer Representative:  A manufacturer representative is the driving force of sales behind a manufacturer’s product. They can be non-stocking, use consignment or have a buy-sell relationship. If a manufacturer has a manufacturer representative, then the representative is the manufacturers face to the public.
  • Distributor/Wholesaler: Distributors and wholesalers are the middle-men between the manufacturer and consumers. The terms are used synonymously even though there can be a difference. Both buy in bulk, and then re-sale the products in different channels. The main difference is Wholesalers frequently physically assemble, sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots.
  • Drop-shipper: A drop-shipper is a type of distributor/wholesaler. A drop shipper will purchase from the manufacturer, and then drop-ship orders directly to consumers from a third party order.
  • Retailer: A retailer is a storefront where consumers can walk in store and physically buy the manufacturers product. Now, with the internet, we have developed e-tailers. An e-tailer is an online storefront that consumers can browse and purchase the manufacturers products over the internet.
  • Supplier: The term supplier can be used for any of the above one-to-one relationships, and some industries refer to suppliers as vendors. If the manufacturer has a representative, then the manufacturer is the representatives’ supplier. Similarly, the manufacturer’s representative that the wholesaler purchases from is the wholesaler’s supplier…and on down the distribution chain.
  • End User/Consumer: Consumers are those who purchase the products from retailers. Shoppers. When you buy a product for your use, you are a consumer…the end user.

These definitions can be applied across mediums, into your realm of business. Now there are exceptions, like with computers and software, but for the most part, you can use this basic vocabulary list in your next meeting, and be sure that everyone is on the same page when you are talking about a new wholesaler relationship that you have acquired that will drop-ship products for you.


 

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