A distributor enters into a partnership with a manufacturer who supplies a product. Usually, distributors buy the product at wholesale prices. The distributor sells the product at a retail price to the end user. A distributor maintains the option of sole responsibility for moving merchandise around the world or selling to a network of smaller companies. Total U.S. wholesale distributor sales approximated $3.2 trillion in 2008, according to Entrepreneur.com.
Storage space is an essential requirement for distribution. The location and size of the storage space is important. Once the distributor receives the product from the manufacturer he must store it. Most distributors choose to store in a warehouse so he can conduct all business from that location. Other options include a garage or small climate-controlled, rented storage unit.
A distributor needs a reliable method to transport goods. Most distributors invest in their own delivery trucks or hire a courier service. Purchasing a delivery truck usually requires the distributor to hire a driver, depending on the volume of the business. Hiring a courier service provides employees with experience.
A distributor must secure manufacturing and retail clients. The entire basis of the distribution business is based on the relationship with clients. A distributor needs strong sales and negotiating skills to build and maintain relationships with clients. The focus for a distributor is to buy the product at the lowest price, then sell that product to the customer while turning a profit. In order to build a good working relationship with customers, a distributor needs to find a mark-up price the customer considers reasonable.
A distributor needs to sign a written contract specifying terms between both distributor and manufacturer. Include an ethics clause within that contract, stating that both parties agree to represent the manufacturer's products in a legal, honest and ethical manner. Spell out specifics about all pricing and terms.
A distributor must obtain a state resale license, as well as a federal tax identification number in order to legally operate, according to Julian Dent, author of "Distribution Channels." Individuals apply at their local county clerk's office for the resale license and the federal tax number application comes from the IRS.
Most manufacturers provide an application for distributors to fill out. This application requests general information from the distributor. Several manufacturers also require the distributor prove knowledge of the business and product. Manufacturers do not typically provide clients, so they usually ask if the distributor has an established customer base.