What is a Distributor?
Written by True Tamplin, BSc, CEPF®
Updated on July 12, 2021
Define a Distributor In Simple Terms
A distributor is an entity who purchases bulk amounts of product from a manufacturer and distributes it either directly to consumers or to retailers who then sell to the consumer.
Distributors are also sometimes called “Wholesalers.”
A distributor is a key component of the Supply Chain Model used by both Manufacturers and Retailers because it allows a company to specialize or focus operations on its primary strengths of either producing goods or selling to consumers.
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Some companies, such as Wal-Mart, built their empires by having both internal distribution channels as well as retail stores.
This creates enhanced communication between the two functions which allows for flexibility and quicker response times to changing markets.
The business model for distributors is to buy products from a manufacturer at a low price and sell it to retailers or end users at a higher price.
In order to maximize profit, the distributor must enter into supply agreements offering low purchase prices for a high markup while focusing on operational efficiencies to keep costs low.
Determining goods which may be inexpensively purchased with high markup opportunity requires foresight into market trends and commodity prices.
Operating efficiently requires sophisticated infrastructure and route-planning.
Because of this complexity, many manufacturers and retailers will opt to hire a third-party distributor to distribute products rather than build out their own infrastructure.