Wholesale distribution and third-party logistics are two distinct business models that share some similarities. In this article, we’ll explore the features and benefits of each model and how they could support your business strategy.
A wholesale distributor is in the business of buying and selling products. Wholesale distribution provides sellers and buyers with an established market for bulk transactions at competitive pricing.
In comparison, a third-party logistics provider (3PL) is a service provider. The company manages inventory and shipping on behalf of its clients without taking ownership of the product. The revenue stream is based on the services provided and not on sales of the products.
Both models involve managing products and fulfillment, so the physical flow and processes behind the scenes are comparable. The primary differences reflect who owns the products and how the company generates revenue.
Read on to learn more about each distribution model and how it may fit into your business strategy.
What is a Wholesale Distributor?
With a market size of more than $12 trillion, wholesale distribution is a critical node in the global supply chain, helping create market opportunities for sellers and buyers.
A wholesale distributor sells products to a wide range of companies, including independent resellers, retailers, B2B distributors, and e-commerce for consumer and commercial customers.
There are specialized wholesale distributors, such as those serving the food service and auto parts sectors. Some companies have no direct sales channels and rely on wholesale distributors for their go-to-market strategy.
A wholesale distributor is a middleman between a manufacturer and the customer, which may be another business, such as a retailer, or an end user. A distributor buys bulk inventory from manufacturers and other distributors, holds it in stock to sell to customers at wholesale prices, and may distribute it to end users. A wholesale distributor may sell products directly through a website or catalog or provide products to resellers. The distributor can fulfill orders directly for a retailer or reseller through parcel or drop shipping. Resellers benefit from access to products within an established distribution model.
The wholesaler provides fulfillment services, including stocking, picking, packing and shipping direct to customers. Distributors can expand their offerings with value-added services such as customization, kitting and reverse logistics. At their core, distributors help businesses reach a broader market by leveraging their relationships with retailers and other distribution channels.
A wholesaler may offer proprietary brands as well as nationally known names to provide customers with a range of products and price point options.
What is a 3PL?
A 3PL is a logistics services provider that manages some or all of a company’s warehousing and distribution. It’s a foundation of the supply chain industry, with a market size estimated at $1.22 trillion in 2023 and growing more than 5% each year.
The first party is the company that owns the product that requires transportation. The second party is the carrier that moves the product by road, air, rail or ocean. The third party is an outsourced service provider that manages the supply chain operations on behalf of the first party. The 3PL simply provides services as directed by its customer and doesn’t own the products in the warehouse. It’s essentially warehousing and logistics as a service.
Using a 3PL allows a company to focus on its core competencies, such as product development and marketing. The company can leave the complexities of inventory management, fulfillment and shipping to experts who do it every day.
A 3PL may own and operate assets such as trucks and warehouses or lease some or all of that capacity as needed. Also, a 3PL may provide value-added services such as reverse logistics, kitting, customization and assembly.
A wholesale distributor may also offer 3PL services to customers who prefer that model, capitalizing on their extensive logistics infrastructure and expertise.
Whether you’re interested in wholesale distribution or third-party logistics, choosing the best partner can help your business deliver long-term success.