Vendor Managed Inventory/ Consignment Stock, is owned and managed by the vendor/supplier but is located at the retailer/buyers premises. Usually, the retailer will only pay for products which have been sold. At the end of the consignment period the vendor can take back any unsold goods.
The Risks Of Consignment Stock
Consignment stock is great for retailers as it minimises the outlay of their stock purchasing.
Retailers only pay for stock when it’s sold which means it’s the vendor that is taking the most risk, if not all. If the stock doesn’t move, the vendor is left with dead stock and initial production costs to cover.
Managing Consignment Stock
Vendor managed inventory is difficult to manage. We hear it time after time from businesses (who aren’t on TradeGecko, yet). The amount of time and resource required to maintain visibility of stock levels and sold items is ridiculous.
TradeGecko solves this by allowing you to create sales orders which you can then pack and send with the goods. Once the goods are sold you can remove those line items off the sales order and copy them across to an invoice.
Make Sure You Own Your Stock!
A simple mistake most businesses make is that they supply the consignment goods with an invoice. Legally, in most countries, an invoice means that the goods are now the legal property of the buyer. Best practice is to send out a Pro-forma Invoice or a Sales Order. Both of these documents are non-binding and the goods will then stay legally owned by the you the vendor and not the buyer.
So How Do You Make Consignment Work?
Consignment works best when both parties, vendor and retailer, agree to take some risk and add value where they can. A retailer might be able to offer you good floor space, allow you to up skill their staff on your products, or maybe allow you to feature additional point of sale (branding artwork) which could be in-shore or on their website. Get the retailer to add more value than just products on the shelf make it worth the extra effort. And use a system like TradeGecko to help manage and keep control of it all.
We hope this article has helped you better understand vendor managed inventory.