Consignment stock
Consignment stock is stock legally owned by one party, but held by another, meaning that the risk and rewards regarding to the said stock remains with the first party while the second party is responsible for distribution or retail operations.[1][2]
Ownership
Ownership of consignment stock is passed only when the stock is used (issued or sold in the case of a shop). Unused stock in a warehouse may be returned to the supplier when it concerns standard manufactured products. With customer specific items, agreements concerning returning products, should be negotiated.
Relationship between company and supplier
In a Consignment Stock relationship, the supplier guarantees the company that stock of an item will be available between an agreed minimum and maximum level, and which is stored near the point of use by the company. The company does not own or pay for the stock until it is consumed or sold. In this way, information regarding the consumption of the item is immediately available to the supplier, facilitating continuous refreshment of stock. This provides some protection to the company from demand fluctuations by ensuring stock is always available, whilst simultaneously providing the supplier with better information about the company's consumption of the item.
Accounting
As ownership of consignment stock is not transferred until use, invoicing is not immediate. To account for a replenishment of consignment stock at a customer site, a manufacturer must credit inventory and debit customer consignment stock. Only after a customer actually uses the consignment stock may an accounts receivables be created.
See also
Notes
- Valentini and Zavanella (2003). "The consignment stock of inventories: industrial case and performance analysis" (PDF). International Journal of Production Economics. Retrieved 17 August 2018.
- Battini; et al. (2010). "Consignment Stock Inventory Policy: Methodological Framework and Model". International Journal of Production Research. Retrieved 17 August 2018.