Consigned Inventory and How To Manage It Effectively

➤ How Consignment Inventory Works?

• Supply Agreement: The supplier and retailer enter into an agreement detailing the terms of the consignment, including the duration, pricing, and settlement process.
• Inventory Supply: The supplier delivers the goods to the retailer’s location but maintains ownership of the inventory. The retailer displays the products and sells them to customers.
• Sales and Payment: Once a product is sold, the retailer pays the supplier a pre-agreed price or percentage of the sale. Unsold inventory can often be returned to the supplier, which further minimizes the retailer’s risk.

➤ What are the benefits of Consignment Inventory?

• Reduced Financial Risk: Retailers can offer a wider range of products without significant upfront costs, reducing their financial burden.
• Improved Cash Flow: Retailers pay only for inventory that is sold, helping them maintain more stable cash flow and manage working capital more effectively.
• Increased Inventory Turnover: Since the retailer typically doesn’t own the inventory until sold, they can frequently refresh their stock, leading to quicker inventory turnover rates and the ability to respond dynamically to market demand.
• Stronger Supplier Relationships: Engaging in consignment can foster stronger partnerships between suppliers and retailers, which can lead to better pricing, support, and collaborative marketing efforts.

➤ What are the Challenges of Consignment Inventory?

• Inventory Management: Retailers must manage their inventory carefully, as they may lack full control over stock levels and must ensure products are sold before the consignment period expires.
• Supplier Dependence: Retailers may become highly dependent on their suppliers for stock availability and may face challenges if suppliers experience production delays.
• Complexity in Accounting: Tracking consignment inventory can complicate financial reporting. Retailers must reliably account for the unsold inventory and ensure compliance with accounting standards.
• Limited Sales Control: Since ownership remains with the supplier, retailers might have limited authority over pricing strategies, promotional activities, or the timeline for return of unsold goods.

➤ Operational Considerations

For businesses considering adopting a consignment inventory model, several operational factors should be taken into account:

1. Clear Agreement: Establish a clear consignment agreement outlining responsibilities, payment terms, inventory management practices, and return policies.
2. Effective Inventory Tracking: Implement robust inventory management systems that accurately track sales, returns, and remaining stock levels to ensure transparency and accountability.
3. Regular Evaluation: Evaluate the performance of consignment items frequently. Identify slow-moving products and discuss potential strategies with suppliers to optimise inventory.
4. Open Communication: Maintain open lines of communication with suppliers regarding inventory levels, stock performance, and market trends. This collaboration can optimise both parties’ sales strategies and supply management.

➤ Consigned Inventory Management in Oracle NetSuite

NetSuite 2026.1 introduces the Consigned Inventory Management feature to track vendor consigned inventory using a distinct set of inventory statuses. This feature lets you process vendor consigned regular, lot, and serialised items from purchasing and receiving to outbound fulfilment. It also supports processes, like vendor returns, inventory counts, replenishment, and adjustments, that ensure accurate and adequate levels of stored items. If you have multiple locations, you can choose those for which you want to track and process vendor consigned inventory. Item records enabled for consigned inventory track quantities and values for consigned and non-consigned inventory separately within each location. When you set costing methods, you can assign a required vendor consigned asset account and optional vendor consigned COGS account. If you use bins, your bin settings for locations and items also apply to consigned items. Based on your business requirements, you may use transactions that support the feature and add consigned items automatically or manually, as follows:

• Check the Consigned box on purchase order lines or link an entire order to a purchase contract for consigned items.
• Add received items with appropriate inventory statuses to item receipts generated from purchase orders.
• Add unconsumed items to vendor return authorisations without ever taking ownership.
• Add sales or transfer order lines for outbound consigned items, and then generate fulfillments for fulfilled quantities.
• Add sold items to cash sales or invoices, whether generated or standalone.
• Generate vendor bills from purchase orders that automatically include consigned items with consumed quantities only.

To distinguish from non-consigned items, ensure that consigned items have the appropriate inventory statuses tagged with the Consigned – prefix in transactions that require statuses.

Enhanced tracking and integration among procurement, fulfillment, and sales flows ensure that you pay only for sold or consumed vendor consigned items, with ownership automatically transferred at the time of sale. Using the Consignment Purchases workbook, you can view and track consignment consumption.

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