Manufacturer direct sales vs. distributor procurement: An Analysis of the advantages and disadvantages of supply chain models and a decision-making guide
In the commercial operation, it is the core supply chain decision-making to choose“Manufacturer direct sales” or“Dealer procurement”. The two modes are significantly different, and their advantages and disadvantages are different. In this paper, the core characteristics of the two modes are systematically decomposed, and the key differences are clearly presented by comparing the tables, and the decision-making reference can be provided to help enterprises choose the optimal scheme according to their own needs.
Direct Sales from Manufacturer
Definition: skip distributors, wholesalers and other intermediate links, directly to the product manufacturer procurement mode, is a direct link between the“Production end” and“Purchasing end”.
core advantage
Price and cost advantage (core advantage)
Complete elimination of the middle link mark-up, usually can obtain the full link of the lowest purchase price;
In the case of bulk procurement, the price can be directly negotiated with the manufacturer to further compress the cost space.
Strong control of products and information
Direct access to the production side, access to first-hand product information (technical specifications, materials, production processes, etc.) , to avoid information deviation;
More efficient quality traceability: if there is a quality problem, you can directly locate the production process, easy inspection, claims and improvement.
High communication efficiency and customization potential
Technology docking more smoothly: can directly communicate with the factory engineer, production person in charge, quickly solve professional problems;
Support for deep customization: Easy Implementation of OEM/ODM requirements (e.g. design changes, LOGO customization, packaging adjustments) to suit specific business scenarios.
Stability of supply is more manageable (in theory)
Directly connect the production source to reduce the risk of shortage/disconnection caused by insufficient inventory and logistics delay in the intermediate link (which depends on the stability of the manufacturer’s own production capacity) .
main drawbacks
High minimum order size
Manufacturers generally set a strict minimum order quantity (Moq) , small and medium-sized purchasers or start-ups need to bear high capital occupation and inventory pressure, trial order is difficult.
The procurement process is complex and the supporting services are missing
Manufacturers focus on the core production, usually do not provide credit, advances and other financial support, payment conditions are strict (mostly pre-payment or letter of credit) ;
Supply chain risk concentration
Relying on a single manufacturer: if the manufacturer’s production capacity shortage, quality fluctuations or business crisis, will directly lead to the buyer supply chain disruption;
High replacement cost: it takes a lot of time and money to find and verify a new manufacturer, and the cost of trial and error is high.
Service response lag
Manufacturer resources tend to large customers, small orders of after-sales support, technical answers, problem solving is often not timely enough, lack of flexibility.
Purchasing from Distributor/Reseller
Definition: the mode of purchasing through intermediaries (agents, distributors, wholesalers) , distributors first from the manufacturer batch take goods, and then on-demand sales to the end purchaser, it is an indirect link between the“Production end” and the“Purchasing end”.
core advantage
High purchasing flexibility (core advantage)
Low threshold of minimum order quantity: support small batch purchasing, multi-category mixed order, greatly reduce inventory pressure and capital occupation;
Adapt to the test scenario: when the demand is uncertain, it can quickly test in small batches and reduce the risk of decision-making.
Perfect localization service
High Logistics Efficiency: provide more local warehouse distribution (such as the next day) , simplify the supply chain process, reduce the buyer logistics management costs;
More flexible service: Support Monthly, credit and other payment methods, after-sales return replacement, technical advice more timely response.
Category integration ability, to achieve“One-stop procurement”
Distributors usually act for multiple brands/categories of products. Purchasers can supply a variety of materials from a single distributor without docking with multiple manufacturers, saving time and management costs.
Supply chain risk diversification
No dependence on a single manufacturer: if a brand product is out of stock or has quality problems, it can be quickly switched to other brands/alternative products represented by distributors, and the supply chain is more resilient.
main drawbacks
Higher procurement costs (core disadvantage)
Need to bear the dealer’s middle mark-up (including the dealer’s operating costs and profits) , the purchase price is usually higher than the manufacturer’s direct sales.
Accuracy of product information decays
The distributor’s understanding of the technical details of the product is far from the manufacturer, and there may be deviations or omissions in the information transmitted, which increases the cost of communication.
Product control is weak and customization is limited
Can not directly affect the production process, quality problems need to be traced through dealers, longer process, lower efficiency;
There is little support for customized requirements (such as OEM/ODM) , and only existing standardized products from resellers can be purchased.
High inventory uncertainty
Purchasers need to rely on dealers’ inventory management capabilities: If the dealer stock shortage, may appear“Need to purchase without goods” situation, affect the progress of the business.
Table of comparison of core features
| The dimension of character | Factory direct selling | Buying from distributors |
| Purchase Price | Low (no middle mark-up, negotiable) | High (including dealer profits and operating costs) |
| Minimum quantity (Moq) | High (the barriers to entry are too high to accept small orders) | Low (support for small batch, mixed purchase) |
| Financial pressure | Big (need to pay in advance, take up a lot of inventory) | Small (available on credit, using less capital) |
| Logistics storage | Self-financing (expensive and complicated to manage) | The dealer is responsible (worry-free, efficient) |
| Support Services | Less (production only, no financial/after-sales support) | More (after-sales, returns, technical advice) |
| Product customization | Strong (communicates OEM/ODM requirements directly) | Weak (support for standardized products only, no customization) |
| Information accuracy | High (direct connection to the production end, no information bias) | Low (possible omission or bias) |
| Supply chain risk | Concentration (dependence on a single manufacturer, high risk of disruption) | Decentralisation (fast brand switching, resilient) |
| Purchasing efficiency | Low (complex process, long lead time) | High (one-stop shop, fast response) |
| Fit the scene | High volume, stable demand, customizable, cost sensitive | Small batch, multi-category, changeable demand, heavy service |
Decision-making reference: How to choose a suitable model?
The core logic of the choice is“Match your business requirements”, which can be judged from the following four dimensions:
1. Look at the size of procurement and financial strength
If for large-scale, long-term stable orders, and the enterprise is well-funded (can bear the advance payment and inventory)→ Priority to choose manufacturers direct sales, maximize the compression cost;
If for small batch, multi-frequency procurement, or enterprise funds (need to control inventory occupancy)→ Priority dealers procurement, reduce operating pressure.
2. Look at product features and requirements
If the purchase of standard products, common parts (such as ordinary office supplies, basic raw materials)→ both, need to compare the“Purchase price + logistics cost + management cost” total cost;
If you purchase technical complex products (such as custom equipment, special parts) , or have OEM/ODM requirements → must choose the manufacturer direct sales, ensure accurate information and customization.
3. Look at the strategic direction of the supply chain
If the enterprise strategy is * * “Cost leadership”* * (such as retail, mass manufacturing)→ give priority to the development of manufacturers direct supply, through source procurement to build cost advantage;
If the enterprise strategy is * * “Agility and resilience”* * (such as FMCG, start-up brand test marketing)→ cooperate with quality distributors to improve supply chain response speed and anti-risk ability.
4. Look at the stage of development
Large Enterprises/Mature Enterprises: it is suggested to adopt the“Mixed mode”-the core bulk materials (such as main production materials) are selected for direct sales by manufacturers, and the auxiliary and emergency materials (such as maintenance parts) are purchased by distributors, balancing cost and efficiency
Small and medium-sized enterprises/start-ups: start from“Dealer procurement”, reduce the cost of trial and error and the difficulty of management, until the business volume is stable and the supply chain demand is clear, and then gradually connect with the manufacturers.
Conclusion
There is no“Absolutely optimal” procurement model, “Mixed mode + on-demand adaptation” is the best choice for most enterprises. By defining its own procurement scale, product demand, supply chain strategy and development stage, and flexibly combining the advantages of manufacturer direct sales and dealer procurement, in order to achieve“The lowest cost, the highest efficiency, the lowest risk” supply chain goals.
