Consignment inventory is stock located at the customer site that remains the property of the supplier until the goods are withdrawn. Only on withdrawal does ownership pass to the customer and the invoice fall due. The model was originally developed for foreign trade, but it is equally common in domestic supply relationships. It is also referred to as consignment stock or a consignment store.
Setting up and framework conditions
To set up a consignment store, customer and supplier record the details in a framework contract covering both commercial and logistical aspects.
Framework contract
Commercial part
The commercial part of the framework contract covers:
- the articles
- prices and payment terms
- the transfer of ownership
- sanctions if the supplier fails to deliver
- the location of the store and who bears the storage cost
- the complaints process, for example in the case of quality defects
- the term of the contract
Logistical part
The logistical part of the framework contract covers:
- planned quantities and maximum withdrawal quantities per day or week
- maximum stock and safety stock or range of coverage
- supplier access to the consignment store for stock checks and replenishment
- how a withdrawal is registered and reported
- the contingency strategy
Recording withdrawals
Several systems are used to record customer withdrawals. They keep the stock figure in the consignment store current so that replenishment is triggered in time.
Single-bin system
In a single-bin system the withdrawn article is scanned, much like at a supermarket checkout. Alternatively, a scale can be installed at each storage location to record withdrawals automatically. That method is prone to interference, however, and only works for sufficiently heavy parts.
Two-bin and multi-bin systems
Two-bin and multi-bin systems use kanban cards or barcodes to register withdrawals. RFID sensors can also capture the identity and position of a bin and trigger orders automatically.
Suitable products
Only articles with few variants and continuous, predictable consumption are suitable for consignment inventory. The stock has to bridge both the replenishment lead time and fluctuations in demand. The underlying stock parameters are described in inventory management; the wider chain view belongs to supply chain management, and the physical provision at the workplace to material supply.
Consignment inventory in practice: Our services overview brings together the relevant planning and consulting approaches.