Consignment stock is stock that is in the possession of the retailer, but is still owned by the supplier. Usually, consignment stock consists of new and unproven products, and very expensive products where sales are questionable.
For wholesalers or suppliers like yourself, consignment stock brings about both additional benefits and drawbacks.
Benefits to selling consignment stock
1. Cost savings
When you consign stocks, you get to evade inventory carrying costs because the products sit in your retailers’ warehouses or stores. On the other hand, your consignees do not need to put money on the goods they sell, only until after the merchandise has been sold.
2. Gets products in front of end users
You get to ride on your retailers’ marketing and sales efforts to push your product sales. Also, consignment gets your products in front of end-users and customers, which is a critical part of the sales cycle.
3. Ease fear on clearing stock
Having consignment stock also eases your retailers’ fear of being stuck with something that may not sell. This increases receptiveness and confidence towards your goods and brand at different stockists because they can avoid investing in products they are unsure of.
Drawbacks of consignment stocks
1. You bear most of the risk
When you consign goods, you bear the risk of losing your capital investment associated with the consignment stock. Furthermore, your consignee might take advantage of the consignment stock and not get too keen on pushing your products in the market without a good profit sharing incentive.
2. Difficulty in eyeballing consignment stock
You are exposed to higher chances of overstocking or duplicate consignment inventories. This is damaging for both you and your consignees – they spend more on inventory storage costs while your goods pile up and sit idly in their warehouses. Also, discrepancies in consignment stock between you and your retailers could mean lost profit or even leads to distrust in the relationship.
Limited systems for managing consignment stock
Consignment stocks are always tricky and complicated to handle because they are distributed to many retailers that are situated in different locations. Most inventory management systems don’t handle consignment stock well; it’s the ‘change in ownership without monetary transaction’ part that trips up most software.
This forces a lot of businesses to manage consignment stock via manual processes such as using spreadsheets and back-and-forth phone calls to collaborate with each other. Not only is this time consuming, it brings about so much confusion, human errors, and introduces unnecessary complications to your business.
So if consignment stock is a significant part of your business, you need to look for a system that allows you complete control and full visibility over your consignment stock.
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