An Ultimate Guide on Consignment Inventory Management

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The consigned stock has the potential to yield excellent returns. Consignment inventory offers clients easy, dependable products and consistent revenue for distributors. Consignment inventory happens when distributors stock and handle goods on-site with their customers, only collecting payment when that product is used.

Because they believe consignment is too expensive, distributors may be hesitant to grow their consigned inventory company. They think it would force companies to keep excessive merchandise on hand at customers' premises, tying up cash and raising the risk. However, there are several advantages for both distributors, and their clients, provided distributors set the appropriate consignment conditions and adhere to consignment inventory best practices. It's considerably simpler to handle committed inventory if you understand the fundamentals.


What is consigned stock, exactly?

When distributors handle inventory at a client's location, such as a warehouse, stockroom, or worksite, the customer only has to pay for the inventory once it is used or sold. This is known as a consignment.

This may be a successful tactic when used in conjunction with the appropriate consignment tracking system. Since clients already have the products they need in stock, distributors may sell merchandise more rapidly by having it at the customer's location. Distributors must keep the proper balance to accomplish it correctly. To ensure consumers stay supplied at their location, watch out for overstocking and ensure the reorder threshold is established.


What advantages can consignment inventories offer?

Customers and distributors both gain from consign surplus stock. The possibility of developing a relationship between a distributor and a customer is one of the main advantages. Distributors play a crucial role in the customer's inventory lifeline when they supply and maintain inventory at the customer's location.

Consignment inventory performs best when handled with technology that guarantees the distributor is not holding excessive amounts of goods and that their clients are adequately compensated for what they utilize. Customers gain from being able to store merchandise locally and make it available when required while only paying for it when it is sold or utilized.


First, ask yourself these questions.

Asking yourself these questions will help you determine whether you are aware of the benefits and hazards of consignment inventory before starting a program.

How does my inventory fare? Once more, ensure you know where your inventory will be kept, who will have access to it, and what will happen if it isn't immediately sold.

What if my inventory is destroyed or lost by the customer? It is crucial to have customers' trust. Yet mishaps do occur. Be prepared for the possibility that your customer will lose or destroy your merchandise before it can be sold. You should answer this in your consignment inventory contract.


Typical consignment inventory errors

Consignment inventory provides several benefits. However, distributors sometimes need to correct this when putting out contracts with their clients for consignment inventory.

What not to do is as follows:

Executing the request of the customer

If the client requests that you store your inventory in their structure, you should ensure that it will be safe. Also, find out if it will be insured and who will have access to your stuff. Given that it is your product, you must be sure that the location where it is being stored is reliable.


Believing without confirming

To have a solid consignment inventory relationship, trust is essential. But you must also do a check. When it comes to billing, this is very clear. You need inventory management software that provides a trustworthy, accurate accounting of exactly who used the product and when, for instance, if you show that the customer has used 10 items. Still, the customer claims they have only used five. This will ensure that you get paid without having to haggle.


The absence of a contract

A contract is necessary to hold both parties responsible. The agreement may provide that the numbers must add up when the distributor conducts a manual count or inventory, or the client will be responsible for the discrepancy. If the consignment terms are clearly stated up front, you can refer to the contract if there are any questions afterward.


Overlooking the margins

When handling consignment inventory, more is needed to consider how much business you conduct with the client. Consider if your net margin for that client is sufficient to warrant the added work of consignment inventory.


Recommended methods for consignment inventory:

To properly manage consignment inventory, you must follow:


Purchase automatic replenishment equipment.

For a consignment inventory service to be effective, it must maintain a healthy inventory to guarantee that the client always has something they can sell or utilize. The option to define minimum and maximum levels are provided by automatic replenishment systems, allowing the distributor to resupply precisely what their clients want at the precise moment. Utilizing automated tracking technologies allows you to eliminate guesswork from the restocking process.


Think about how quickly inventory changes

The consigned inventory provides the distributor a more excellent value when a client flips inventory fast. Seek a product combination with a better value and higher turnover. Successful collaboration requires a running business.


Choose the appropriate product mix for your consignment inventory.

A client can insist on having everything sold on consignment. But consider whether products are appropriate for consignment. Out of 100 products, 40 may be one-off purchases, and 60 might be recurrent purchases. In that situation, you may monitor replenishment on just the 60 goods and set up a consignment exclusively for those.  may provide you with advice in this regard.


Use the appropriate technology to ensure that your consigned inventory levels are optimal.

Getting the appropriate technology to support your consignment inventory management is crucial. Utilizing for consignment has the advantage that the min/max tuning capabilities may optimize the inventory and guarantee the customer has the bare minimum required to satisfy their end-customers. By automating this procedure, uncertainty is removed. Clipboards and pencils are only necessary with the correct software in place. Distributors may determine actual use and the minimum and maximum quantity the client needs to stock using the min/max tuning dashboard. As a result, a distributor needs to keep less inventory at the client location, which saves the distributor money and yearly carrying expenses.



For distributors looking to improve their client connections while creating the potential for higher profitability, moving toward consignment inventory might be a terrific opportunity. When successful, anticipate rising client spending and escalating loyalty.

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