Distributors

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 22, 2022

Define 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.

Distributor Strategy

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.

Business Model

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.

Distributor FAQs

What is a Distributor?

A distributor is an entity that purchases bulk amounts of product from a manufacturer and distributes it either directly to consumers or to retailers who then sell to the consumer.

Are a Distributor and a wholesaler the same thing?

Distributors are also sometimes called “Wholesalers,” but the two terms are slightly different than one another.

What is the business model for a Distributor?

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.

What is an example of a Distributor strategy?

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.

What is a supply chain?

In commerce, a supply chain is a system of organizations, people, activities, information, and resources involved in supplying a product or service to a consumer.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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