Cambridge IGCSE Commerce: Outsourcing and Wholesaling (0715)

Outsourcing (2.2) and wholesaling (2.4) are two of the shorter sub-topics in Topic 2 Commercial operations of Cambridge IGCSE Commerce (0715), first examined in 2028, but both appear regularly in structured questions. You need to explain why outsourcing has grown through contract manufacturing and contract logistics, and to explain the functions of the wholesaler, why it matters to manufacturers and retailers, and how independent wholesalers survive through cash and carry and voluntary chains. The other Topic 2 sub-topics are outlined in the Commercial Operations study guide.

Where this fits in 0715

Topic 1 introduced in-house and outsourced production (1.2.2) and intermediaries in a supply chain (1.2.4). Topic 2 builds on both: 2.2 asks why outsourcing has grown, and 2.4 looks in detail at one intermediary, the wholesaler. Both feed forward into Topic 4 Logistics in commerce (transport and warehousing) and Topic 3 global supply chains.

Syllabus coverage

CAMBRIDGE IGCSE COMMERCE (0715) — 2.2 OUTSOURCING AND 2.4 WHOLESALING

• 2.2.1 The growth of outsourcing: contract manufacturing and logistics
• 2.4.1 The functions and services provided by the wholesaler
• 2.4.1 The importance of the wholesaler to the manufacturer and retailer
• 2.4.1 Reasons why the independent wholesaler survives: cash and carry and voluntary chains

What is outsourcing and why has it grown?

Outsourcing means paying another enterprise to carry out an activity the business could otherwise do itself (in-house). The syllabus names two areas where outsourcing has grown.

Contract manufacturing — a business pays another firm to make its products, or parts of them, to an agreed specification. Many clothing, electronics and toy brands design and market products but have them made by specialist manufacturers, often in another country. The brand owner keeps control of design, branding and selling.

Contract logistics — a business pays a specialist firm (often called a third-party logistics provider) to store, pack, transport and deliver its goods. Online retailers commonly use contract logistics firms to run warehouses and deliveries, especially at busy times.

Why outsourcing has grown:

Reason	Explanation
Lower costs	The specialist may have lower labour costs or economies of scale, so the work is cheaper than doing it in-house
Access to expertise	Specialists have skills and equipment the business lacks
Focus on core activities	Managers and capital can concentrate on what the business does best, such as design or marketing
Flexibility	Output or storage can be increased or reduced without buying new factories or warehouses
Growth of ecommerce	Online selling needs fast storage, picking and delivery, which logistics specialists provide
Better communication	Digital communication makes it easier to coordinate with suppliers in other places

Drawbacks to weigh: less control over quality and delivery times; dependence on the contractor; risk to confidential designs; and damage to reputation if the contractor treats workers badly or harms the environment. A good answer weighs these against the benefits for the business in the question.

What does a wholesaler do?

A wholesaler buys goods in large quantities from manufacturers and sells them in smaller quantities to retailers. It sits between the two in the chain of distribution.

Functions and services for the manufacturer

• Buys in bulk, giving the manufacturer large, regular orders and allowing long production runs.
• Stores goods (warehousing), so the manufacturer needs less storage space.
• Bears risk of goods not selling, falling prices, damage or theft once it owns them.
• Pays promptly, improving the manufacturer’s cash flow.
• Distributes to many retailers, so the manufacturer deals with a few wholesalers instead of thousands of shops.
• Provides market information about what retailers and consumers are buying.

Functions and services for the retailer

• Breaks bulk, selling in quantities a small shop can afford and store.
• Offers a wide range of goods from many manufacturers in one place.
• Gives credit, so the retailer can pay after selling the goods.
• Delivers goods to the shop.
• Gives advice and information on new products, prices and displays.
• Prepares goods, for example by packing, labelling or price-marking.

Why is the wholesaler important?

For the manufacturer, the wholesaler reduces the cost and time of selling to many small shops, reduces storage costs and risk, and provides cash flow. For the retailer, it saves the need to buy large quantities, provides choice and credit, and reduces the time spent dealing with many suppliers. The wholesaler also reduces the total number of transactions in the chain of distribution.

Why does the independent wholesaler survive?

Large supermarket chains often buy directly from manufacturers, bypassing the wholesaler, and ecommerce lets manufacturers sell direct to consumers. Independent wholesalers have survived in two ways named by the syllabus.

Cash and carry. The retailer visits a large wholesale warehouse, chooses goods from the shelves, pays immediately and transports them itself. Because the wholesaler offers no credit and no delivery, its costs are lower, so its prices are lower. Small retailers, cafés and restaurants can buy what they need when they need it.

Voluntary chains. A wholesaler and a group of independent retailers agree to work together. The retailers agree to buy most of their stock from the wholesaler; in return, the wholesaler’s bulk buying gives them lower prices, and the group shares a common brand name, advertising and promotions. Each shop stays independently owned but can compete more effectively with large chains.

Worked example

A small food shop buys from a cash-and-carry each week. A delivery wholesaler offers to supply it on 30 days’ credit, at prices about 5% higher. Advise the shop.

Cash and carry: lower prices, choose own goods, but owner's time,
                transport cost and payment straight away
Delivery wholesaler: credit helps cash flow, delivery saves time,
                but higher prices reduce profit margin
Judgement: if cash flow is tight, credit may be worth 5% extra;
           if the owner has a van and time, cash and carry keeps prices low

Common mistakes

• Describing outsourcing in general without naming contract manufacturing and contract logistics.
• Saying the wholesaler sells to the public — it sells to retailers.
• Listing functions without saying whether they help the manufacturer or the retailer.
• Calling a voluntary chain a chain store; the shops in a voluntary chain stay independently owned.
• Forgetting that cash and carry means no credit and no delivery.

Frequently asked questions

What is contract manufacturing? It is when a business pays another firm to make its products to an agreed specification, while the business keeps control of design, branding and selling.

What is the difference between cash and carry and a voluntary chain? In cash and carry the retailer collects goods from the wholesaler and pays at once. In a voluntary chain independent retailers agree to buy from one wholesaler and share a brand and promotions in return for lower prices.

Why do manufacturers use wholesalers? Wholesalers buy in bulk, store goods, bear risk and distribute to many retailers, saving the manufacturer time, storage costs and the expense of dealing with thousands of shops.

Quick revision checklist

• Define outsourcing and explain its growth through contract manufacturing and contract logistics.
• Give at least four reasons for the growth of outsourcing and two drawbacks.
• List the wholesaler’s functions for the manufacturer and for the retailer.
• Explain the importance of the wholesaler to both.
• Explain how cash and carry and voluntary chains help independent wholesalers survive.

Related: Outsourcing, wholesaling and communication revision notes | Outsourcing, wholesaling and communication practice | Commercial operations revision notes

Official syllabus

Cambridge IGCSE Commerce (0715) syllabus for exams in 2028 — cambridgeinternational.org.