In the business world, there are many terms that are familiar and often used, but often we can misunderstand them. One concept that often appears in the business world is suppliers and distributors. Yes, the terms supplier and distributor are parties that have an important role in the sale of a product. Both have a role to distribute goods from producers to consumers. But make no mistake, both have different roles and functions in the business chain. Therefore, KH Pals need to understand the differences between suppliers and distributors well. Especially if your business is tied to partners or other vendors in its operations. Let’s see the full explanation below!
Definition of Supplier and Distributor
To know the difference between suppliers and distributors, you must first understand the definition of both. According to Oberlo, a supplier is a person or business that provides products or services to other entities. Suppliers in business are to provide high-quality products from manufacturers at competitive prices to distributors or retailers for resale. A supplier in business is someone who acts as an intermediary between manufacturers and retailers, his job is to ensure that upcoming communications and stock are of sufficient quality. Meanwhile, according to Saloodo, a distributor is an entity that buys goods and resells them, mainly to retailers. In the distribution channel, distributors act as one of the intermediaries when products move from manufacturers to end users. It can be concluded that a supplier is the first hand that provides goods or services to another party, while a distributor is the party that forwards and sells the goods or services to the end customer.
What is the difference between a supplier and a distributor?
Although both play a role in distributing goods, suppliers and distributors have differences from one another. What are the differences and their roles in business?
Function
As explained earlier, suppliers have a role to supply raw materials for consumers. However, suppliers have several other functions, including:
- Ensure the availability of raw materials in accordance with the requests of companies in need.
- Maintain the production process and control the quality of raw materials so that they are always of good quality.
- Organize the storage of raw materials so that they remain in good and safe condition.
- Organize the process of delivering raw materials so that they remain safe and reach the company on time in accordance with the agreement between the two.
Meanwhile, the function of a distributor is to be the link between producers and consumers. Here are some of the functions of a distributor:
- Helps distribute goods and services produced by producers to customers, both retailers and consumers.
- Get customers who fit the area and can also serve customers or consumers better.
- Monitor price stability
- Make it easy for consumers to get or buy the goods or services they need.
Form of Sale
The first difference between suppliers and distributors is seen in the form of sales. Suppliers sell goods continuously to other entities for production activities. For example, a fabric supplier will supply its fabric to a convection business for production needs. Later, the fabric supplied by the supplier will be further produced for later. For example, a convection business produces shirts and pants from the fabric provided by the supplier. Suppliers usually have work agreements that are tied to other businesses. They will be responsible as a permanent supplier for a certain period of time. The results of production from convection are then handed over to distributors to be sold to agents. This means that the distributor’s form of sales is as the first hand after the manufacturer and is free to sell products to any agent.
Item Type
The next difference between suppliers and distributors can be seen in the types of goods sold. As mentioned earlier, suppliers provide goods for production. That is, in this case the supplier provides raw materials for production. For example, fabric suppliers for convection businesses, paper suppliers for printing services, or palm oil suppliers for the cooking oil industry. Unlike distributors, in the business chain distributors can provide raw goods and can also provide finished goods. Distributors are the first hand after the manufacturer, so most distributors sell finished goods to be passed on to agents or retailers. Examples include distributors of instant noodles, soy sauce, bread, and cooking oil distributors.
Final Product Outcome
The difference between suppliers and distributors lies in the product outcome. As in the previous example, paper suppliers sell paper to printers or companies to be reproduced or used directly to support business activities. This means that the products sold by suppliers will not be sold again in the same form. When the supplier sells paper, the paper will be used as a medium for printing documents and sold in the form of printing services. Likewise, the paper supplied to the company will be used as an inventory tool and not for resale. Meanwhile, distributors buy goods from manufacturers directly and then sell them to agents. Agents will later sell it again to grocery stalls. For example, a distributor of cooking oil buys its goods directly from the manufacturer. The cooking oil is then sold to agents, who then pass it on to small stalls.
Benefits Gained
Another difference between suppliers and distributors can be seen from the benefits obtained. Suppliers will benefit directly from selling raw materials or raw goods to industry. The profit and selling price are usually agreed upon in the contract agreement for a certain period of time. This applies to permanent suppliers of a company or factory. Meanwhile, the profits earned by distributors come from the discounts they get when buying goods from producers. For example, the price of cooking oil per liter is IDR 12,000 in the market. When buying it directly from the producer, the distributor can get a discount to Rp10 thousand. Then the distributor will sell it again to agents at the initial market price. The distributor benefits from the discount, meaning that in this case the distributor makes a profit of IDR 2,000 for each liter of cooking oil.
Choose the Right Supplier and Distributor for Your Business!
After understanding the difference between suppliers and distributors, KH Buddy is expected to determine which concept and strategy suits your business needs, such as working with several suppliers or cooperating with distributors who have a wide network. However, choosing reliable suppliers and distributors is not easy. Therefore, here are some tips to help you in the selection process:
Product Quality
Make sure that the products provided match the quality standards you want. Ask for a sample of the product to evaluate before making a decision.
Experience and Reputation
Choose a supplier or distributor that has experience and a good reputation in the industry. Those that have proven to be reliable tend to deliver more consistent results.
Capacity and Capability
Check their production (for suppliers) or distribution (for distributors) capacity. Make sure that they can fulfill your current and future needs.
Balanced Pricing
Compare prices between several options, but always consider the relationship between price and quality. Too low a price may be at the expense of quality.
Business Ethics and Cooperation
Choose a supplier or distributor that aligns with your business values. The ability to collaborate and communicate well is also important.
KH Contact
Well, that’s an explanation of the differences between suppliers and distributors including tips for choosing them. So, is your business ready to collaborate with one or even both parties? Or are you still hesitant and worried that it won’t run smoothly? Just consult with Contract Law!
ALSO READ: Things to Consider to Become a Distributor!
Together with professional experts, we can help you to ensure successful cooperation with suppliers and distributors through our cooperation agreement drafting service. Why is it important? Because with an agreement, you can set quality standards for the products that will be supplied by suppliers and distributors, including price and payment terms. Not only that, the agreement also regulates the rights, obligations, and restrictions on the use of brand ownership and promotion rights so as to provide legal protection for all parties involved. Let’s carry out cooperation with suppliers and distributors safely and easily at Kontrak Hukum! For more information, please visit KH Services – Distribution Contracts page. If you have questions about other business needs, you can also consult with us for free anytime and anywhere via Ask KH and direct message (DM) to Instagram @kontrakhukum.
