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Consignment Stock


"Consignment stock is not just about shifting the cost; it's about aligning interests and incentives between supplier and retailer." - David Yang, Supply Chain Consultant

What is Consignment Stock?

Consignment Stock is an element of Stock Management used to optimize stock costs, where payment is made when the goods are used rather than when they are received.


It is based on the French word “Consigne: Trust”.


In Consignment Stock, which is based on the principle of stock ownership, the goods are physically owned by the institution, but the ownership is with the supplier. Ownership of the goods passes to the institution only when the goods are put into production or sale.

Thus;

  • The organization is saved financially,

  • The supplier obtains a goods sales guarantee.


Consignment Stock is mostly used in the retail and production sectors.

  • In the retail industry, goods are paid when they are sold, not when they are placed on the shelf/counter.

  • In the production sector, it is paid when the goods are put into production, not when they are delivered.


Consignment Stock, which is a part of Strategic Purchasing, can only be used in the construction industry in high-amount and long-term repetitive purchases within the framework of Strategic agreements.



Benefits

  • Cash Flow: Payment is made when the product is actually used or sold. This improves businesses' cash flow. In this way, the slow return speed of the goods will not be a problem.

  • Financial Relief: Since the financing of the stocks is made by the Supplier, "Working Capital" The need decreases.

  • Risk Reduction: Since the management of stocks belongs to the supplier, the risks are assumed by the supplier. Of course, it should not be forgotten that the consequences will be experienced by the institution.

  • Focus: Businesses can focus on their core business by spending less time on inventory management.

  • Flexibility: Consignment stock provides the flexibility to respond quickly to demand fluctuations, Whiplash Effect

  • Stock Availability: Customer satisfaction increases as products are always on hand.

  • Strategic Relationships: If managed well, it strengthens long-term and strategic business relationships with the customer.

  • Risk Management: "Stock levels" and "storage conditions" It is controlled by the supplier, thus minimizing risks.



Risks

  • Management Complexity: Can create an extra layer of management for both parties, complicating business processes.

  • Trust Issue: The consignment stock model can create difficulties if there is no complete trust between the supplier and the buyer. Another reason for the trust problem is the possibility of the supplier incurring losses as a result of the sales planned at the beginning of the process not being realized.

  • Demand Forecasting: Consignment stock can trigger loss and waste if an accurate demand forecast is not made.

  • Slow Turnaround Rate: If products are not sold quickly, capital is tied up for the supplier.

  • Stock Control: Incorrect or incomplete stock counts made by the institution may create financial and legal risks for both parties.

  • Quality Risk: The quality of products that remain in the warehouse for a long time may decrease, which may negatively affect customer satisfaction.


Consignment Stock vs VMI Comparison



 

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