Consignment Inventory Management: The Complete Guide
There are different ways for retailers to get and sell their inventory. The most common is where a retailer purchases their inventory and stocks it in their warehouse for the customers to buy. However, consignment inventory can be a risk-free option for the retailer.
A wholesaler will bear most of the risks with their inventory since the retailer only purchases once the stock is sold. In this case, the wholesaler retains ownership of the inventory until it’s sold. If their inventory isn’t bought, the retailer returns it to the wholesaler.
For a retailer, there are many advantages to using consignment inventory management. The first is that the wholesaler will bear all the inventory carrying costs. Consigned inventory will be perfect for a retailer who doesn’t have any ready cash flow.
Why Use Consignment Inventory?
Not everyone has the finances to purchase stock and wait for the customers to make a purchase. As a retailer, you might opt for consignment inventory to save time and money. Here are some reasons why, as a retailer, you need to consider consigned inventory.
- Low risk – Since you don’t have to pay for the inventory upfront, you can use your capital to purchase established products. In return, you can consign new supplier brands and test out the market.
- Low cost of ownership – Instead of having a warehouse full of purchased products, retailers can look for consigned products that will lower their ownership costs.
- Better cash flow – The retailer will always win in every situation. When skeptical about a product, they will not have to spend a lot to hold it and test whether their customers will make a purchase.
Besides the retailer, the supplier will also experience some advantages in opting for consignment inventory. Some of those advantages will entail:
- Low inventory costs – If you don’t have a warehouse, worry not since the retailers will stock your products at a lower cost.
- New markets – When dealing with a new product, a supplier can use the retailers to test out the market and know whether it will sell. Both the retailer and the supplier will attain essential information from running such tests.
- Retailer connections – As a supplier, you will deal with many retailers and build some rapport. It can boost your sales since you can try out consignment inventory with multiple retailers.
Making Consignment Beneficial for the Retailer and Supplier
Even with the added advantages for both parties, some issues can arise with the consigned inventory. For example, the retailer will risk the inventory’s damage depending on how long they have it in their warehouse. These strategies can help negate such problems.
1. Mutually Beneficial Contracts
The contract has to outline the expectations and responsibilities of both parties. This will involve the prices of the goods, the duration that the retailer can hold inventory, and expound on who will be liable for inventory damage.
Detailing the contract ensures that there will be transparency between both parties and boosts the partnership. It can negate any potential disagreements and disputes.
2. Mutually Beneficial Relationships
Developing an honest relationship is key to reaping the biggest rewards. Both the retailer and supplier can work together towards strengthening and improving their supply chain management processes. They can assist each other in increasing consignment inventory efficiency.
3. Consignment Inventory Management Software
Integrating consignment inventory with technology boosts the collaboration between retailers and suppliers. Choosing an inventory management software will assist in handling the stock for both accounts.
If both the retailer and supplier are new to consignment inventory, using software eradicates any confusion. It can also encourage businesses to try out consignment inventory. The perfect consignment inventory software has to:
- Track the inventory from the supplier
- Track the inventory with the retailer
- Track all the retailers’ inventory needs
- Ease the consignment inventory management process
Boost Consignment Inventory with ERP Systems
Consignment inventory management will enable companies to improve supply chain efficiency and alleviate order fulfillment issues. Having a well-thought-out Enterprise Resource Planning (ERP) system in a business will ensure that the consignment inventory management strategies will work.
To solve all the potential problems that a retailer might face with consignment inventory, consider appropriating these tactics.
1. Look for Mobile Data Tools
Integrating ERP into the existing business models is necessary for mobile data collection capabilities and consignment inventory strategies. Some mobile data tools like barcode scanners will collect real-time information on the inventory.
Furthermore, automatic cataloging processes enable the business or retailer to move data to the ERP system. The process will reduce any need for data entry. When data entry options are used, you might introduce room for errors and make it harder to track the inventory.
2. Integrate ERP to the Framework
ERP integration will provide the business with accurate information about the inventory levels within a consignment stock. The integration will eliminate compatibility and synchronization issues. Some of the ERP integration tools will assist with:
- Reducing errors by eradicating manual processes.
- Remove user data entry burden through automatic ERP updates.
- Automatic data compilation from multiple sources.
- Enable employees to focus on other targets rather than data entry.
3. Remote Management
With mobile data collection tools, you can efficiently conduct remote site management. The ERP system synchronizes automatically to provide the retailer with real-time inventory data. These remote management tools can also play a huge role in boosting coordination between the supplier or wholesaler and retailer.
These tactics will lay a foundation for any software that the retailer might opt to use for better consignment inventory management. They will assist with:
- Simplifying management tasks
- Creating audit trials
- Reducing asset damages
- Boosting inventory transparency
- Identifying when inventory is low
Consignment Inventory Management Software
As a supplier, your goal is to make sure that your inventory is safe. With inventory management software, it’ll be easy to keep tabs on every retailer you’re working with. The software will be an optimal solution to ensuring that you won’t make any losses. Here are the factors to consider when looking for inventory management software.
Some software providers will charge for the inventory management software, while others won’t. Look and compare both options to ensure that you’re getting the best deal. With free consignment inventory management software, ensure that all your basic needs are met.
Both suppliers and retailers can benefit from the consignment inventory management software. Checking your finances to know the software you can afford will be critical to the partnership’s success. Select a software solution that will also have the right technology.
The paid software might have some complex features, and their prices will vary. Check the features of the software to ensure that you can enjoy some cloud-based solutions. Cloud-based consignment inventory programs will be suitable for companies with low budgets, SMEs, or startups.
The usability of the software will determine the implementation of the inventory management system in a company. The software you choose should be simple for the employees to learn. It can allow them to serve the customers quickly and provide reliable services.
Remember that you need inventory management software that can make your work easier. As long as it will take more time to learn and use, it’s not worth the purchase or consideration. An easy-to-use software is all you need to look for.
3. Your Requirements
Understanding your requirements assists you in knowing the software to purchase. Remember that this will be an investment, therefore, it has to perform as you’d like. One way of knowing your requirements is by looking for the different inventory management challenges that you’re facing.
After which you can know the solutions or remedies that the software can offer. The software has to provide some solutions that will ease with consignment inventory management. Explaining your requirements to the developers can help you find software that can tick all the boxes.
Consignment inventory might pause its challenges from time to time. You need to find software that can adhere to the different commands that you have. Also, a customizable program will easily meet your needs. Therefore, you must check how long it will take for the commands to take effect.
In case you already have a program in place, you should compare it with a newer solution to know whether it’s worth the upgrade. The additional features can be a better addition to the ones you already have in the old software.
5. System Integration
If you have additional inventory management programs, you need to choose software that can integrate with all your tools. The software has to work with other business departments like the procurement department, management, accounting, and eCommerce.
Types of Inventory Management Systems
To stay ahead of your competition, you ought to learn about your inventory. Knowing what is in the warehouse assists with future procurement decisions and eases your distribution tasks. You need an all-encompassing system to deal with the when, where, and how to place the inventory.
1. Perpetual Inventory Management System
Using this system will enhance continual updates of the inventory records. When using this system, you need to be confident that all the information you attain can be up to date. Also, it ensures that the employees will not spend their time repeatedly checking the stock levels.
It’s a system that can save you money and time. However, you must check the available technology to ensure that there will be efficient inventory management solutions. You also need to know of the different downsides that you have to consider with the perpetual system.
- Special software – The perpetual system will require you to look for specialized software. It can, in return, add to the budget of maintaining the system.
- Frequent updates – This can be an advantage and a disadvantage. An advantage is that you will attain the best developments within your inventory management system. You can stay up to date with the best features and boost your efficiency. It can also be a disadvantage if the updates will take long before installing.
- Possibility for discrepancies – Without frequent physical inventory counts, there can be a mismatch in the recorded and actual inventory.
2. Periodic Inventory Management System
Both perpetual and periodic systems will highlight when the inventory data is fed into your system. With the periodic system, data is fed at a particular time. Smaller organizations can enjoy this since they can easily maintain small product amounts.
With a smaller business, it’ll be easier to conduct physical counts of the inventory. However, this can have some downsides for both smaller and larger companies.
- Estimating the cost of goods – It might not be ideal with consignment inventory since you’ll need to estimate the cost of goods. It might lead to significant adjustments after the data has been updated.
- No information on the costs of sold materials – The ending inventory balances might differ since the sold materials’ data will not be accurate or available.
When to Consider Consignment Inventory
Not everyone is for consignment inventory. However, for a supplier, there are times when you might need to give it a try. The various instances to consider consignment inventory will include:
- When testing demand for a commodity in a new market, you get to gather information about what customers like about your product and the different things that they don’t like. From such a study or test, you can know the various improvements to make on the product.
- When distributing an unproven product in the market – Customers will receive a new product in different manners. Using consignment inventory means that you can attain some unsolicited feedback on the products.
- If you have an expensive product, not many customers will be willing to purchase it. Looking for reliable retailers and appropriating consignment inventory with them can assist in selling the product.
When to Avoid Consignment Inventory
There are two sides to a coin. Even if consignment inventory is what you thrive with, not most companies will be willing to try it out. However, there are times when using consignment inventory will not be ideal. Here are a few:
- If you don’t have a system in place to track the consigned inventory.
- If you’re skeptical about whether a new market is fit for your materials.
- If there is pressure to consign your products from a retailer.
- If loss or damage to the product can affect your business.
Try Consignment Inventory Management
Many people don’t welcome something new with open arms. The way a business approaches consignment inventory management can affect the wellbeing of their supply chain. Appropriating these strategies can boost your supply business and assist you in selling more products.
For a retailer, you get more advantages with this sales model. Trying it out can allow you to know the new markets you can serve and some suppliers you can work with.