CPIM Practice Exam

When is it advantageous for a manufacturer to sell directly to a retailer instead of going through a wholesaler?

1. When the retailer has a better inventory management system.

2. When the wholesaler adds more cost than the value they provide.

3. When direct shipping incurs higher costs.

4. When the products are in high demand.

The correct answer is: When the wholesaler adds more cost than the value they provide.

Selling directly to a retailer can be particularly advantageous when the wholesaler adds more cost than the value they provide. In situations where a wholesaler is involved in the supply chain, they often introduce additional costs related to distribution, handling, and storage. If a manufacturer determines that these costs outweigh the benefits the wholesaler brings—such as faster movement of goods, lower transportation costs due to bulk shipments, or market expertise—it makes financial sense for the manufacturer to bypass the wholesaler and sell directly to retailers. Direct selling can also enhance profit margins for the manufacturer while allowing more competitive pricing for retailers, as they would no longer have to allocate budget to cover the wholesaler's markup. This direct connection can also enable better communication regarding inventory levels and customer preferences, thus optimizing the overall supply chain efficiency. In contrast, while other options may present valid scenarios, they do not provide a strong enough basis for manufacturers to choose direct sales over wholesaling. For instance, if a retailer has a better inventory management system, it does not automatically mean eliminating the wholesaler would be beneficial if the wholesaler provides significant value. Similarly, higher shipping costs associated with direct shipping would typically deter manufacturers from bypassing wholesalers, while high demand may not necessitate a direct sale if the