

by Vicki A. Benge

Some companies specialize in creating products, others in marketing products and some do both. Applying an identifying label to a business correctly, namely calling one a merchandising company and another a manufacturing company, depends on factors such as the structure of operations and the means used to make profits, among others. A distinctive difference between a merchandising company and a manufacturing company is that a manufacturer produces and a merchandiser markets.


The basic difference between a merchandising company and a manufacturing company is that a manufacturer creates products and a merchandiser sells them. Merchandisers include both wholesalers and retailers. Consider, for example a factory that produces widgets and sells them in bulk to distributors, who in turn sell the widgets in smaller lots to stores around the country. In this example, the factory is the manufacturer and the distributors and stores are merchandisers.


Merchandising companies that conduct business as wholesalers generally sell in bulk quantities and may sell only to retailers, not to the average consumer. Retailers, on the other hand, deal directly with the consumer. Stores are retailers' places of business. Manufacturers may sell directly to consumers. However, large manufacturing firms usually sell only to distributors, a type of merchandiser.


Manufacturers have three classifications of inventory: raw materials, work in process and finished goods. Contrastingly, merchandisers do not maintain but one of these three, that is finished goods. Although, merchandisers may classify inventory into dozens of categories, each product on hand is ready for sale to consumers.


Manufacturers make profits by converting raw materials into a finished product that sells at a price that exceeds total production costs. These costs are categorized as direct materials, direct labor and manufacturing overhead. Wholesale merchandisers make profits on the markup, which is the amount added to the purchase price paid to the manufacturer before the product is sold to retailers. Retailers in turn make profits from an additional markup before products are sold to consumers at the retail price. A merchandiser's net profit is obtained by subtracting the cost of operating expenses from gross profit. Gross profit equals sales minus the cost of goods sold.


One of the world's largest companies, Exxon Mobil Corp., qualifies as both a manufacturer and a merchandiser. Many large conglomerates do. However, these large multinational corporations generally are split into manufacturing and merchandising divisions for more efficient management. For example, Exxon Mobil both manufactures and merchandises products, drilling and extracting petroleum and other energy sources and converting these mined products into fuels for direct sale to consumers through retail outlets such as a Mobil gasoline service stations. Another of the world's largest companies is a merchandiser. Wal-Mart Stores Inc. purchases products from manufacturers and wholesalers across the globe and retails the finished products directly to consumers.

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