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B2B Distribution: Bridging Manufacturers & Retailers

In this definitive guide about business-to-business (B2B) distribution, you’ll learn what it is, the impactful role it plays in commerce, and the key elements of crafting a B2B distribution strategy
By
Joe Weaver
December 1, 2023
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B2B distribution is the heart of how products move from manufacturing to the hands of businesses worldwide. However, crafting a B2B distribution strategy isn’t a simple matter. There are challenges, such as ensuring timely deliveries and adapting to the ever-shifting demands of the market. With that said, understanding the basics can make the complex world of B2B distribution much simpler.

Per the American Production and Inventory Control Society, B2B distribution is a vital process that ensures products are delivered efficiently to companies across multiple business sectors. B2B distribution companies contribute to the flow of commerce and the market’s ability to promptly meet demands. 

Ready to learn more about this important link in the retail supply chain? If so, read on as we examine the facets of B2B distribution.

Note: much of the information contained in this article comes from my own five years of experience in B2B auto parts distribution, both as a driver and a commercial manager.

What is B2B Distribution?

Warehouses, such as the one pictured here, are an important element of B2B distribution.

Simply put, it’s the process through which products and services are distributed from manufacturers or providers to businesses. These businesses can include retailers, wholesalers, or even other manufacturers. Products can include anything from raw materials to finished goods.

Imagine a world where every business had to directly deal with each manufacturer to get their goods. Realistically, this solution isn’t feasible with diverse inventories. B2B distribution is specially designed to handle these transactions.

To provide further clarity about this process, we’ll define some important terms related to it.

B2B Distribution Strategy: Understanding the Terms

There are many words and phrases that apply to B2B distribution. Understanding them will provide greater insight into the process.

Some of the most important terms to understand are:

  • Supply Chain Management (SCM): The oversight of information and materials as they move through each stage of the supply chain.
  • Inventory Control: The supervision of product supply and storage to ensure an adequate supply without excess.
  • End User: This is the individual or business that purchases a given product for use rather than resale.
  • Order Fulfillment: This encompasses every aspect of an order, from the point of sale to final delivery.
  • Distribution Channels: The chain of businesses through which goods pass until they reach the end user.
  • Third-Party Logistics (3PL): A 3PL business can handle everything from warehouse storage to transport and delivery.
  • Bulk Breaking: The process of buying large quantities of products and selling them in smaller quantities.

With these terms defined, let’s clear up some points of confusion that often pop up in conversations about B2B sales.

B2B vs B2C Distribution: What is the Difference?

A five-lug brake rotor with single-piston caliper.

The short answer is that B2B distribution goes from one business to another, while B2C (business to consumer) distribution goes to the end user. The terms ‘consumer’ and “end user’ are deliberate here, so some explanation is needed.

Not every customer is a consumer: after all, if you ran a business and bought in bulk from a wholesaler, you’d be the wholesaler’s customer. However, if you resold those items at a profit, you wouldn’t be the consumer/end user.

Basically, end users/consumers are always customers, but not vice versa. 

Is B2B the Same as Wholesale?

While these terms are sometimes used interchangeably, B2B and wholesale aren’t exactly the same thing. B2B distributors can often deliver small orders that don’t qualify for wholesale pricing. To illustrate the key differences, consider these scenarios.

B2B Distribution Center: A professional mechanic diagnoses a customer’s vehicle and finds out it needs new brake rotors. They order the brakes from a local auto parts store, who sends them to the mechanic within an hour via a pickup truck or small van.

The key here is that one business (the mechanic) purchased a small amount of items from another business (the parts store). This would not be considered wholesale, as it was not a bulk order. The rotors were moved almost immediately to the end user, the vehicle’s owner.

Wholesale Distributors: The same auto parts store purchases 100 brake rotors to replenish its stock. It buys the rotors from an auto parts B2B wholesale business, which allows the store to enjoy a significant bulk discount. The retailer marks the price of the rotors up to make a profit when they’re sold.

In this circumstance, one business buys a large amount of goods at a discount for resale. Eventually, the rotor inventory will be depleted, and the purchase cycle begins again.

Technically, these are both examples of B2B distribution because one business sold something to another business, and distribution channels were needed to complete the transaction. However, only the second transaction counts as wholesale.

There are three main differences between these sales that we can observe.

  • Volume: The wholesale transaction involved a large amount of goods that will be stored until sold to end users.
  • Pricing: The price per unit was higher on the non-bulk transaction to generate appropriate revenue.
  • Delivery Vehicle: An individual with a small truck, van, or car can easily transport and deliver one pair of brake rotors. However, shipping 100 rotors will require palletizing and the use of a semi truck and trailer.

Think of it this way: while almost all wholesale transactions are B2B, not all B2B transactions are wholesale. They both play an important role in the chain of commerce, but they are distinct. 

Exploring the B2B Business Channel

An overhead view of workers on a warehouse floor.

B2B buyers and distributors all become active participants within the  supply channel. This has several advantages, such as:

  • More efficient deliveries.
  • A steady stream of revenue.
  • Smoother, more predictable business routines.
  • Allowing businesses to focus on customer satisfaction and marketing strategies.

In the next sections, we’ll go into greater detail about these advantages and provide a simple example of the steps in this channel.

Advantages of B2B Business Channels

A businessman examining information on a futuristic, transparent display.

There are many opportunities in B2B distribution for businesses to optimize shipping, storage, and other aspects of logistics. 

Here’s how B2B distribution channels benefit businesses of all shapes and sizes.

  • Streamlining Shipping Operations: B2B channels often have established networks and processes that make it easy to avoid shipping delays.
  • Bulk Handling Capabilities: They can deal with bulk orders, which small businesses may find challenging to manage on their own.
  • Advanced Tracking Systems: B2B fulfillment and distribution centers use modern tracking systems, allowing businesses to monitor shipments in real-time.
  • Custom Logistics Solutions: Understanding that one size doesn’t fit all, B2B sales channels provide tailored shipping solutions. These include everything from small, multiple daily deliveries to large stocking orders.
  • Cost-Effectiveness: Distributors can merge shipments and find the quickest routes. The result is a cost-effective solution that leaves more money in their clients’ pockets.

These are just some of the advantages a B2B business channel provides. It creates a closed loop of logistics, from manufacturing to the final sale.

B2B Distribution Channel Example

Let’s put these channels into a real-world context with a straightforward example. We’ll start with a company that specializes in producing high-quality, durable office furniture. 

Here’s how their products might make the journey from factory floor to a retailer.

  • Manufacturing: The manufacturer makes 100 office chairs.
  • Wholesaler Purchase: A wholesaler purchases the chairs at a bulk rate discount, storing them for later sale.
  • Transportation: The office furniture is transported to the wholesaler, often involving coordination with logistics providers for long-distance hauls.
  • Retail Purchase: An office supply retailer orders 20 chairs from the wholesaler, which they display and stock at a brick-and-mortar storefront.

Each of the purchases in the steps listed above qualify as B2B: manufacturer to wholesaler, wholesaler to retailer. End users buying from the retailer are examples of B2C distribution.

Within this chain, we’ll see difference price points for each sale. The greater the quantity purchased, the lower the margins and per-unit prices of the goods. 

Let’s go back to our office chair example. Assume the chairs cost $30.00 a piece to make. The following table provides examples of how prices and margins go up as they get closer to the consumer. 

SourceQuantity SoldMarginPrice Per Unit
Manufacturer100 to a wholesaler20 percent$37.50
Wholesaler20 to a retailer25 percent$50.00
RetailerOne to an end user45 percent$90.91

Note that each margin is calculated based on the price paid by the purchaser, not the original manufacturing cost.

Each of those steps need a shipping strategy.  Without one, the process can never get off the ground. The nuances of this B2B distribution strategy will vary based on business needs, but there are some general steps that can be followed as a framework. Let’s take a look at them.

Creating a B2B Distribution Strategy

A warehouse worker reviewing inventory management software on a tablet.

For business owners who want to sell products to other businesses, crafting a distribution strategy is crucial to a successful venture. 

The following guidelines are a good template for building this strategy.

  • Logistics Planning: Determine the logistics of how your product will get to its intended recipient(s). Do you have warehousing and fleet services, or will you need full 3PL support?
  • Efficiency Saves Money: Shipping costs are a reality of doing business. That said, they can be reduced through proper scheduling and routing.
  • Select Distribution Channels: Choose the best channels to reach your business customers. Will you sell directly, work with wholesalers, or both?
  • Aligning Goals: Make sure your distribution strategy supports and is supported by other initiatives, such as your B2B marketing plan.
  • Risk Management: Identify potential risks in your distribution strategy and develop contingency plans. This can range from supply chain disruptions to changes in market demand.
  • Feedback Loops: Create ways to receive feedback from customers and partners. This valuable information will help you to refine and improve your strategy over time.

If shipping products from one business to another seems more complicated than you expected, you’re not wrong. Building a scalable distribution model requires extensive resources and knowledge of logistics. If only there was a company focused on assisting businesses with product distribution.

Hang on a minute…

B2B Distribution with Product Distribution Strategy

Building a B2B distribution network is no small task. One weak link in the chain can have disastrous results, especially for small, growing businesses. That’s why we’re here to help.

Product Distribution Strategy has the two most important ingredients for successful B2B shipping: infrastructure and experience. With a fleet of trucks plus warehouses and cross-docking facilities located across the USA, we can meet your B2B needs.

Our services include:

B2B distribution is crucial for retailers, wholesalers, and manufacturers alike. Let our expert team help. Call us at (855) 863-7672 or contact us online today. We can handle all your logistics needs like nobody’s business.

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