Q.How does the wholesaler help the manufacturer in availing the economies of scale?

Retailers place small, scattered orders. A wholesaler collects these many small orders, pools them together, and places one large bulk order with the manufacturer. Because the manufacturer now produces in large quantities:

• The cost per unit falls, and
• The manufacturer enjoys the economies of scale of large-scale production. …

The problem large-scale production faces. A manufacturer can only produce economically in large quantities, but its actual buyers — the retailers — are numerous, scattered over a wide area, and each places only a small order. If the manufacturer had to deal with each tiny order separately, it could never plan confident, continuous, large-scale production.

How the wholesaler solves this:

• Pooling of orders: The wholesaler collects the small orders of many retailers and pools them into a few large orders. Instead of countless small demands, the manufacturer sees a handful of bulk orders it can plan around.
• Bulk purchasing: The wholesaler then places these bulk orders with the manufacturer, buying large quantities in its own name.
• Enabling large-scale output: With assured bulk demand, the manufacturer can confidently produce on a large scale, and large-scale production brings down the cost per unit — the economies of scale. …