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Question

Difficulty: MediumChannels of Distribution

A large-scale footwear manufacturer in Nigeria decides to bypass wholesale trade and sell its goods directly to independent retail chain outlets. What is the primary operational impact of this decision on the manufacturer?

  1. The manufacturer must absorb the warehousing, inventory financing, and risk-bearing functions previously handled by wholesalers.Answer
  2. B
    The total cost of storage and bulk transportation shifts completely to the final consumer.
  3. C
    The manufacturer completely eliminates all auxiliary commercial functions associated with distribution.
  4. D
    The manufacturer is legally required to issue a credit note for all transport and delivery charges incurred by retailers.

Answer

The manufacturer must absorb the warehousing, inventory financing, and risk-bearing functions previously handled by wholesalers.
When a producer bypasses the wholesaler to sell directly to retailers, the essential distribution functions of the wholesaler—such as holding bulk storage, extending credit terms, and absorbing risk of loss or demand fluctuations—do not disappear. Instead, the manufacturer must allocate capital and operational capacity to perform these functions directly.

Step-by-Step Solution

1
Identify the change in the distribution channel structure.
The channel changes from Producer → Wholesaler → Retailer → Consumer to Producer → Retailer → Consumer.
The wholesale stage is bypassed.
2
Analyze the core functions performed by the eliminated middleman (wholesaler).
Wholesalers break bulk, store goods, finance manufacturers through prompt payment, finance retailers through credit, and bear risk.
Middlemen can be eliminated, but their essential distribution functions cannot be eliminated.
3
Determine who absorbs those functions when the wholesaler is removed.
The manufacturer must take over bulk storage, credit extension, and risk management.
Retailers buy in small quantities and cannot store large factory-level stock.

Key Concept

Impact of Eliminating Middlemen in Distribution Channels
Estimated Time:1m 15s
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Topics

Channels of Distribution

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