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Consignment inventory: A guide for retailers and suppliers

What is it?

Consignment inventory is a supply chain in which retailers offer their products, but the suppliers keep the inventory of the products until they are sold. Unlike traditional inventory practices, consignment inventory puts responsibility to sell goods on the manufacturer or supplier.

How does it work?

Typically, the supplier would approach the retailer with an offer, the retailer will then consider the offer. Negotiations will then usually take place before the contract is signed by both parties. Clear communication is critical in this phase, as the contract should be as detailed as possible to avoid any potential issues. The supplier then delivers the goods to the retailer based on the conditions of the contract. The retailer pays the supplier for the requested inventory and proceeds to sell it.

What are the benefits?

There are many benefits to this type of model for both retailers and suppliers. By using consignment programs, retailers no longer need the large cash flow they might otherwise with traditional supply chain model, thus making it a lot less risky. Retailers don’t lose money on items that don’t sell, while manufacturers and suppliers are able to have more control over their goods.

Benefits to the retailer

  • Wider variety of goods
  • Higher potential for sales
  • Less risky financially than traditional methods
  • Increased visibility of products
  • Fewer storage needs

Benefits to the supplier

  • Avoid inventory carrying costs
  • More flexibility to test the market’s interest in products
  • Streamlined supply chains
  • Increased cash flow

Our best tips

Our biggest pieces of advice for either retailer or supplier that is considering utilizing a consignment inventory method would be to know your product, explore your options, write a clear and detailed contract, have open communication with the other party, and to use updated inventory management systems.

Please talk to your customer service representative for more information.