Consignment sales is a tricky one and there is certainly no shortage of articles out there listing the pros and cons of selling your products on consignment. However, the goal posts shift a bit depending on what blog you’re on and the position of the writer. The benefits of selling on consignment for the supplier are quite different to the benefits for the retailer. So taking an objective stance of course, we laid down what we believe to be the five benefits of consignment selling… for both supplier and retailer.
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1. Save on inventory costs
This is definitely one for the retailers! The retailer, or ‘consignee’ in this case, doesn’t have to cough up the cash until the item is sold to the end user. In other words, the consignee doesn’t have to pay the supplier (or ‘consigner’) until the merchandise is sold, which improves cash flow on the part of the retailer.
2. It gets the product in front of customers
Here’s one for the suppliers! No matter how good the product, there are some items of inventory that need to be in front of the customer in order to sell. I.e. merchandise that customers need to touch, taste or test before they purchase. Consignment selling makes it much easier for the supplier to convince the retailer to stock their product.
3. Restock as it sells
A benefit for both parties is that consignment selling generally avoids lag times between selling stock and new orders arriving. It’s in the best interests of the supplier and retailer to keep the shop restocked, so inventory is usually replaced as soon as it sells. The lag time between goods sold and new goods arriving is potential business lost, which consignment selling avoids.
4. Reduces risk for new products or sales channels
Selling on consignment allows suppliers and retailers to ‘test the waters’ on the success of a new product or a new sales channel without running the risk of major financial loss. Retailers can introduce an unproven item or try an established product in a new sales channel before investing heavily in it. In the end it’s better for both retailers and suppliers to work out what product sells best in which arena before pouring more capital into it.
5. Helps nurture a better supplier / retailer relationship
Introducing a new product or initially selling on consignment allows both the retailer and supplier to judge what levels of inventory are turned over in particular time periods. This allows the retailer and supplier to eventually establish a more traditional bulk order system in realistic order quantities that suit both the former consignee and consigner. Ordering the right amount, selling the right amount and using consignment sales to change course every now and then establishes a stronger relationship between both parties.
Managing consignment stock
Managing consignment sales can be a nightmare. You need to track the exact stock that is at the consigned location. The constant movement of consigned stock makes it very difficult to manage on a spreadsheet. Errors in your reporting will lead to lost stock and lost profits.
But don’t fret! Easily manage your inventory with TradeGecko. You treat your consignment retailers as different locations. Then you can create a stock transfer to bring products in and create sales orders from that location as they are sold.
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