Changing Your Business Model Series — The Manufacturer to Wholesale Business Model

In our last newsletter, we talked about the versions of the Retail model that could be categorized in B2C and DTC companies. This included the Brick & Mortar business model, Click & Mortar, and DTC Ecommerce model. 

Today we’re going to take a look at the Whoeslae, Reseller, Manufacturing, and Distribution business models and some example companies of each to continue to help you assess the type of change best suited for you.

We’ll include the list of business model categories we provided at the start of this series for you to reference as you evaluate models —

• B2B (Business-to-Business) — where companies sell their solution to other businesses or organizations.

• B2C (Business to Consumer) — companies that sell to individual end consumers and may use retailers or wholesalers to sell to their customers.

• DTC (Direct to Consumer) — companies that sell directly to individual, end consumers.

• B2B2C (Business to Business to Consumer) — companies that sell their solution to other businesses to help those other businesses sell to consumers.

• C2C (Consumer to Consumer) — companies facilitate consumers selling to other consumers.

• B2C2B (Business to Consumer to Business) — companies who sell to the employees of other businesses who then advocate for their employer to buy the original company’s solution.

• B2G (Business to Government, also Business to Public Administration or Business to Public Sector) — companies sell their solution to government entities.

• C2G (Consumer to Government) — companies facilitate consumers directly interacting with a government entity.

Today’s Business Models — Wholesale, Reseller, Manufacturing, & Distribution

The Wholesale Business Model includes businesses that buy products or services from another business or organization in bulk at a discounted price and then sell those products or services to retailers or other businesses. Their main focus is selling to other businesses or organizations and not to everyday consumers. This model type can fall under the B2B, B2B2C, & B2G categories.

The Reseller Business Model includes businesses that buy products or services from a source like a business, organization, or person and resell them at a higher price to their customer base which could be made up of other businesses, organizations, or individuals. The Wholesale model actually fits under this type; however, the wholesale model differs in that it does not sell to end consumers. A Reseller model selling to other businesses, organizations, or individuals can fall under the B2B, B2B2C, B2G, and C2C business model categories.

The Manufacturing Business Model includes businesses that take resources or raw materials they’ve obtained and create products from them to sell to their consumers. Manufacturers use wholesalers, distributors, resellers, and retailers to sell their products to end consumers. They can also sell directly to end consumers. This business model type can fall under the B2C, B2B2C, B2C2B, B2G, and DTC categories.

The Distribution Business Model includes businesses that buy products and services from producers and manufacturers, store them as inventory, and distribute them to customers such as wholesalers and retailers. They tend to specialize in a particular industry whereas resellers may work with a broader array of industries. Distributors are usually more hands on than Wholesalers. Where a Wholesaler may be more transaction-oriented and not deal directly with Manufacturers, Distributors work directly with Manufacturers as agents to sell their products to wholesalers, retailers, and other businesses or organizations. This model can fall under the B2B, B2B2C, and B2G categories. 

Mapping The Models: Wholesale Business Model

If you mapped out the Wholesale Business Model, it could look something like the following —

Let’s look into some examples.

Wholesale Model Example #1

Cardinal Health is a distributor of pharmaceuticals and specialty products; a global manufacturer and distributor of medical and laboratory products; an operator of nuclear pharmacies and manufacturing facilities; and a provider of performance and data solutions.

From their description, it is evident that they use multiple business models in their business to act as a trusted partner to their customers in the healthcare industry. We are going to focus on their wholesale model around pharmaceuticals.

Cardinal Health is a pharmaceutical wholesale distributor. So, they buy pharmaceuticals wholesale at a discount (or at their Wholesale Acquisition Cost, WAC), and then Cardinal Health sells the pharmaceuticals at their Average Wholesale Price (AWP) to their licensed pharmacy customers who then provide the pharmaceuticals to patients whose doctors prescribed the pharmaceuticals to them. 

Wholesale Model Example #2

Grainger (also known as W.W. Grainger, Inc.) is a leading broad line distributor of premier industrial supplies and equipment. ‘Broad line’ just means they sell a wide range of their products to a variety of customers who require them. Grainger operates in 2 areas of business. First, they have what they call their High-Touch Solutions Segment that provides ~2 million maintenance, repair, and operating (MRO) products and services that include technical support and inventory management. Second is their Endless Assortment Segment where customers can access millions of products for their industrial needs at their websites Grainger.com,  zoro.com, and MonotaRO.com.

Grainger uses a wholesale business model to procure its industrial products from suppliers and then sells those products to its other business customers, or individuals. They sell products to their customers in bulk or individually. We mentioned that Wholesalers usually focus on selling B2B and not on B2C. Grainger is an example of a company that has evolved to embrace the e-commerce business model and integrated it into its model overall to connect with individual consumers. 

Up next is…

Mapping The Models: Reseller Business Model

If you mapped out the reseller business model, it could look something like the following —

Here’s an example of this model.

Reseller Model Example

Router-Switch.com is a leading network supplier that provides enterprise customers and end users with professional Information and Communications (ICT) products and solutions. Router-Switch buys its products from top manufacturer brands (such as Cisco, HP, Juniper Networks, ZTE, Huawei, Fortinet, and Lenovo) and then sells them to its B2B customer base. 

Router-Switch’s use of its Reseller model allows it to provide the top ICT product brands to its customers in order to provide them with the best experience possible.

Mapping The Models: Manufacturer Business Model

If you mapped out the Manufacturer Business Model, it could look something like the following —

Here’s a couple examples of this model.

Manufacturer Model Example #1

Burt’s Bees is a natural skincare product manufacturer best known for its lip balm. Its founders, Burt Shavitz and Roxanne Quimby, started making candles and lip balm out of the beeswax Burt had collected from his beehive in the early 1980s. They focus on using the best ingredients from nature while respecting nature so we can all live well. Burt’s Bees has since expanded into other personal care products such as face and body skincare like sunscreen, cleansers, towelettes, body butters, lotions, and foot creams. Burt’s Bees also utilizes the Retail and DTC Ecommerce model to distribute its products to directly to end consumers. Its products can be found in retailers such as Target, Ulta, CVS, and more.

Manufacturer Model Example #2

Wacom is a global leader in manufacturing pen displays and tablets for creatives. They focus on providing cutting-edge digital ink solutions for companies that use and produce smartphones, tablets, and digital stationary. They have two lines of business that they focus on. First is what they call their Branded Products Business. This line of business is focused on serving creative and non-creative uses (pen tablets and pen displays) and for Enterprises and Organizations (which includes business solutions with digital signature tablets and LCD pen tablets). Second, they have what they call their Technology Solutions Business which focuses on their digital pen solutions for manufacturers of smartphones, tablets, PCs, and stationary. Wacom uses wholesalers, distributors, and retailers to sell to their end customers whether for B2C or B2B. It could also fall under the B2C2B category.

Up next is…

Mapping The Models: Distribution Business Model

If you mapped out the Distribution Business Model, it could look something like the following —

Let’s look into a couple examples.

Distribution Model Example #1

Avnet is a global tech distributor, manufacturer, and solutions provider that has existed for over a century. They are known for being a distributor of electronic components. They support their customers (professional engineers, entrepreneurs, and startups) at each stage of a product’s lifecycle — from idea to design and from prototype to production. They’ve positioned themselves at the center of the technology value chain to accelerate the design and supply stages of product development to help their customers realize revenue faster.

For our example, we’re focusing on the distributor business model embedded within their company. Avnet sources electronic components that it then sells and distributes to its specific customers. They have also integrated the e-commerce model into their company to gain direct access to their customer base.

Distribution Model Example #2

Rexel Group distributes tailor-made electrical, heating, lighting, and plumbing equipment and services to professionals in construction, renovation, and in the maintenance of buildings and infrastructure. It serves a B2B client base of multiple sizes, from small and medium-sized businesses to industrial companies and public and private commercial businesses. As a global leader in this space, Rexel has multiple distribution centers globally and has websites to cater to each country it serves. Rexel USA, for example, serves millions of US electrical customers and even provides a mobile app to give its customers ease of access to its product offering.

Key Note About The Wholesale, Reseller, Manufacturer, and Distribution Model

The models we’ve gone over today are usually partnered together to provide the products and services we benefit from in our companies or for personal use.

And, although we reviewed them in a different order, the journey of raw materials getting fashioned into an end product and put in the hands of end customers usually may go something like this: Manufacturer, to Distributor, to Reseller or Wholesaler, and Retailer. Or direct to consumers or a business customer if a DTC model is used.

It’s important to take into account how these partnerships in a product’s lifecycle may affect your business and its journey to your customer base. How would any of these models or partnerships with companies using these models affect your business model into the future? 

The original founder of Avnet, Charles Avnet, started the company in 1921 as a Reseller after WWI had ended and the US removed its ban on private radio stations and radio equipment. He would buy and sell surplus radio parts just as the first electronics component stores were opening in Lower Manhattan. His Retail and Reseller Business Model benefited from the Golden Age of Radio and led to him selling $85,000 in components in his first year of business (roughly $1.1 million today). 

When Galvin Manufacturing Co. introduced the first practical car radio in 1929, Charles added automobile assembly and kits to his offering which made Avnet a value-added distributor that assembled parts together to sell to customers as well as radio components. 

In the midst of the Great Depression, Charles found himself in debt and decided to pivot his business model from Retail to Wholesale. He then started distributing parts for televisions, the newest technology at the time, in addition to Avnet’s radio parts. 

Avnet made it through the Great Depression free of its previous debts because of the model change, and when the US government banned home radio set manufacturing again to prioritize electronics components for the military during WWII, Avent turned its attention to fulfilling government and military requests by opening its first manufacturing facility in 1944. Military antennas were manufactured there. Now, Avnet was a Wholesale Distributor and Manufacturer of electronic components. 

As you can see, there were several variables (technological, socio-political, & economic) that went into Avnet’s decision to pivot or adjust its business models. 

If you have a Retail Reseller Business model today, does it make sense for you to consider changing to a Wholesale Model to address variables that might be affecting your target market fit or revenue model’s success?

Or if you have a Distribution Business Model today, does it make sense to consider integrating your business model with the Manufacturing Model to have more control over the quality of products you’re selling to a particular industry? Maybe you’ve gotten feedback from buyers who desire better product offerings…and you have the knowledge and the potential partners to begin developing your manufacturing capabilities to deliver that better solution to those B2B customers.

What external and internal factors, like Avnet’s encounters with social and political dynamics, are affecting your business model? And what parts of your busienss model is that leading you to consider changing?

Next Steps

We will continue to look at examples of business model categories and types we covered in our first newsletter over the next several newsletters to help you with your thought process around which business model may be a good fit for your business case.

If you’d like LUSID to help you work through your business model change and strategize around which business model is most appropriate for your company vision, you can set up a free call with us here. We’re excited to learn more about you and your company!

And feel free to reach out with any questions or additional thoughts you may have at [email protected]. We love connecting with visionary Founders, CEOs, and executive leadership teams working on impactful visions and ventures.

Let’s Make Your Vision Your Reality.    

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