- Consignment inventory is distributed inventory to a retailer from a supplier, without the supplier transferring ownership of the inventory.
- There are significant benefits and complications when it comes to consignment inventory, most of which can be addressed with a strong up-front agreement and automated software.
- Accessibility, strong data capture, and ease of use are all critical components when determining what consignment inventory software to use.
Inventory is essential to supply chain strategy and optimized business operations. However, purchasing inventory also comes with a certain amount of risk. After all, companies must purchase the right amount of inventory at the right time, or they’ll be left with a surplus of stock thus losing revenue.
That’s why distributors may use consignment inventory.
Consignment inventory is inventory stocked and managed in a retailer’s warehouse, but the retailer doesn’t pay the supplier for the inventory until it is sold. This enables the retailer to keep product on-site and readily available in a cost-effective way.
The risk in consignment inventory is that it can become overly complicated and difficult to track, especially without the right inventory management software.
Understanding the role of consignment inventory and how to apply best practices can help distributors take a strategic approach and build a competitive advantage.
What is Consignment Inventory?
Consignment inventory happens when the supplier, also known as the consigner, distributes inventory but doesn’t transfer the ownership to the retailer. Consigned inventory is organized and kept at the supplier’s warehouse. The retailer pays the supplier once the inventory is used or sold.
This is different from traditional inventory models. Typically, the retailer will pay for a product upfront, even before they’re able to sell it in store. This means the supplier makes a profit right away. The retailer then must sell the product to customers to make money from the inventory.
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The primary advantage of consignment inventory for a retailer is the ability to have inventory on-hand without a large up-front cost. This allows the retailer to be seen as a reliable source for the product in a cost-effective manner.
There’s also an advantage to the supplier. Consignment inventory builds a partnership between the supplier and the retailer, making them an integral part of the inventory supply chain. Further, suppliers gain exposure to their product without having to display or market it.
However, there are also disadvantages to using consignment inventory. For suppliers, there is no immediate influx of cash since profit is dependent on sale to the customer. If the product doesn’t sell, the supplier is still the owner and has to take back the inventory and redistribute it elsewhere.
For the retailer, consignment inventory comes with higher holding costs. You must find floor space to stock and display inventory items. This means retailers must work to optimize their warehouses and floor plans.
In addition, consignment inventory can lead to complicated inventory management.
- Tracking consignment stock separately.
- Making appropriate payments when sales occur.
- Managing consignment relationships.
- Tracking margins and profits given there are no upfront supply costs.
- That’s why it’s vital to have the right technology for tracking usage.
Tracking Consignment Inventory: Methods and Tools
Establishing consignment inventory management capabilities can empower organizations to put products in closer proximity to their customers, alleviate order fulfillment burdens and improve efficiency across the supply chain.
Nevertheless, organizations working to establish consignment inventory management models create added management overhead as companies try to gain visibility into inventory levels and asset dispositions.
Businesses run into challenges trying to manage consignment inventories largely because their existing ERP systems and data workflows are not up to the task of covering the diverse locations and processes involved in the strategy.
In response, many companies establish manual processes to gather data and transmit it between locations. These manual processes don’t just introduce complexity, they also create gaps between systems that can lead to data accuracy and quality problems.
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All told, companies end up in a situation in which data in the ERP ends up segregated from other systems, leading to contradictory and potentially damaging data management problems. Reexamining data management procedures and ERP capabilities is vital to keep up.
While these potential problems are substantial, consignment inventory strategies can offload some warehousing and storage costs suppliers typically need to deal with.
The key is to develop strategies that maximize the potential of consignment inventories by simplifying data management procedures and leveraging technology to break down geographical barriers.
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Three tactics that are particularly beneficial and are consignment inventory management best practices are:
1. Establish an ERP Integration Framework
Ensuring inventory levels in a consignment stock location and within the ERP are accurate is essential. Issues with data synchronization and compatibility between disparate systems can quickly derail any consignment inventory program.
ERP integration tools can:
- Compile data from multiple source types into the ERP system automatically.
- Alleviate the user data entry burden by automatically updating the ERP when data changes in other systems.
- Reduce the likelihood of error by eliminating unnecessary manual processes.
- Free employees to spend more time on value-focused tasks and less on data entry.
These benefits make ERP integration essential as organizations diversify their asset storage strategies through a consignment inventory management strategy.
2. Leverage Mobile Data Collection Tools
ERP integration is a necessary step in a consignment inventory strategy, and mobile data collection capabilities can take the value offered by an ERP to another level.
Mobile barcode scanners can be used anywhere to perform cycle checks or update asset dispositions in real time as users access inventories. This can simplify documentation for customers housing goods in their own facilities.
Furthermore, the ability to automatically catalog processes digitally makes it easier to automatically move data into the ERP, further reducing the need for redundant data entry.
Asking users to update checklists and files manually only to then go and add that data to a computer system creates room for error and makes it more difficult to gain proper visibility into assets.
Mobile data collection tools, on the other hand, initiate automated data synchronization processes and ensure near-constant transparency.
3. Apply Remote Management Functionality
Offline inventory solutions for remote site management allow information generated by mobile data collection tools to reside in local software when connectivity is not available, either to Wi-Fi, cellular, or the ERP system itself.
Once a connection is available, the system will automatically synchronize with an ERP.
There is also an opportunity to integrate field services into main operations. This extends mobile inventory management into the field, allowing employees to re-stock and evaluate inventory levels at any time.
Essentially, remote management tools allow for greater coordination between facilities even when typical processes go wrong.
When combined, ERP integration, mobile data collection, and remote management come together to transform consignment inventory management. Instead of a process that is tedious and filled with slow, manual processes, organizations get a simple, streamlined data ecosystem.
With data from consignment inventory locations integrating into a central ERP accurately, organizations can:
- Simplify any management tasks performed by their customers.
- Automatically identify when inventories get low and ship out new products accordingly.
- Create a built-in audit trail for all parties involved.
- Limit asset damage and loss through greater transparency into inventories.
These types of benefits can come together to transform operations for organizations relying on consignment inventories.
Setting up a Consignment Inventory System
Consignment inventory software is a necessity for both suppliers and retailers. Manual systems are error-prone and lack visibility into critical business information.
An inventory management software, coupled with mobile barcoding solutions, will allow streamlined tracking and reporting, so both supplier and retailer can have the information they need to make business decisions.
When setting up a consignment inventory system, ensure:
- Software is accessible anywhere, from any device.
- Data is easily shareable across both parties and across departments.
- Barcode capabilities are supported to easily track product storage.
- The software integrates with business-critical systems like your ERP.
The more you can automate processes, the more likely you are to eliminate mistakes and costly errors.
Inventory tracking software will help create transparency and efficiency, allowing you to know the exact amount of inventory on hand. And while there are numerous options for inventory software, mobile inventory management systems give you the most benefit, with real-time access to data and up-to-date inventory tracking.
Another solution is to invest in automatic replenishment tools that integrate with your inventory solution. Automatic replenishment apps offer the ability to set minimum/maximum triggers to automate reordering when retailers need more product.
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Managing Consignment Inventory
Consignment inventory can be tricky. There are several benefits but also several obstacles to consider. Here are a few best practices when it comes to managing consignment inventory:
Have a contract in place.
A significant mistake is to not have a contract in place between the supplier and the retailer. A contract holds both parties accountable and sets up mutually agreeable terms to make the contract successful. This will also allow you to outline what to do in the case of returns or disputes. Better yet, have an expert help you draw up the contract so you can address any issues that arise head on.
Verify the information you’re using.
Building a trustworthy partnership between supplier and retailer is key to making this agreement work. However, the use of easily accessible inventory management software will ensure the accurate flow of information.
Balance consigned inventory and other inventory.
As a supplier, ensure you know what items are profitable to consign. These include items that move quickly, have strong margins, and are able to be replenished with ease.
One of the best things you can do when it comes to consignment inventory is to pay attention to your inventory. How quickly does it turn? How can you track your inventory and reorder it when necessary?
Watch for excess overstock.
A large issue to watch for is the overstocking of goods. An oversupply of product creates issues down the road. Rather, look to provide consignment items with high value and high turn.
Ask yourself: what is the typical shelf life for the retailer? Then adjust your inventory levels accordingly and implement auto replenishment tools to create continual supply.
Consignment Inventory Management Case Study: CryoLife
CryoLife, a global biomedical company, came to RFgen looking for a solution that would help it move past paper-based processes and help it update its data management procedures.
The company serves more than 550 hospitals and surgical centers and needed to establish a system that would allow them to manage consignment inventories across those locations with greater precision.
With RFgen mobile barcoding and ERP integration capabilities in hand, CryoLife was able to go paperless, conduct cycle counts while representatives were offline in hospitals, and automatically synchronize when those workers reconnect with the network.
Users could even submit inventory photos, trace any lot-controlled or serialized product and handle cycle counts in multiple languages with localized date formats.
The Impact of Technology on Consignment Inventory Management
Consignment inventory allows retailers to embrace new markets and opportunities, as well as test different types of products in front of new audiences. Future thinking suppliers should look to a variety of sales channels for increased exposure.
Additionally, harnessing the role of digital technologies will enable a beneficial inventory relationship for both suppliers and retailers. Modern data management technologies can empower businesses to take full advantage of what consignment inventory strategies offer.
All told, keeping supplies closer to customers can improve client satisfaction and reduce warehousing inefficiencies. With robust software systems in hand, companies can glean even more value from such strategies and mitigate any potential risks, setting up the organization for long-term success.