Appropriate inventory management should be your primary focus as a retailer. A thorough stock management system can help you satisfy client demand and keep track of the inventory levels of every product you sell.
Preventing overstocking will also lower expenses and give you more insight into your inventory’s performance. The NetSuite consignment inventory model can help with all of this.
What Is Consignment Inventory?
The consignment inventory supply chain is a model where a retailer may sell a product. However, the supplier retains ownership of the item until a customer purchases it. Since the store does not actually purchase the inventory until the items sell, it can return merchandise customers decline to purchase. Popular offerings that utilize the consignment model include seasonal items, like holiday decorations, and perishable products, like fruit.
Let’s understand with an example. A department store may want to carry a large assortment of Christmas decorations but does not wish to invest heavily in the inventory of these items. The department store reaches an agreement with a manufacturer of Christmas ornaments. The manufacturer consigns ornaments to the store. The store then displays the ornaments and sells them to its customers. At the close of the holiday season, the shop returns all ornaments that do not sell to the manufacturer.
This is a win-win situation because NetSuite consignment inventory enables lower costs for the supplier and the store. Both the retailer and the supplier can provide items to customers without the danger of overstocking. This arrangement enables the store to stock more varieties of decorations without incurring a financial risk by purchasing them outright.
Explaining Consignment Inventory
Retailers may decide to use NetSuite consignment inventory strategy in their establishments. To sell some of its designs in-store, a shoe company, for instance, can collaborate with a small designer. In this scenario, the designer would oversee the consignment stock, and the shop wouldn’t have to place its own shoe orders.
A vendor may contact a retailer or the other way around to work up a deal for joint product sales. After that, a consignment contract will be drafted. The terms of the agreement (i.e., how long the stock will be on display for sale by the store) should be included, as well as the pricing for the products to be sold and the consignment fee.
Consignment goods are typically available for purchase online or in a physical location, much like regular stock.
How Consignment Inventory Works
NetSuite consignment inventory usually involves the provider of the products, known as the consigner, approaching a retailer, known as the consignee. Together, they negotiate the conditions of the contract. This agreement will specify the price of the items, establish delivery costs, and provide details on how returns will be handled. The contract may also specify which party will be in charge of lost or damaged goods, provide criteria for deposits or commissions, and describe how the inventory will be managed.
The supplier will send the inventory to the store after both parties have agreed to the terms of the agreement. The supplier receives payment only when the retailer makes a sale. The price a shop sets for an item determines its profit. If the store doesn’t sell out of its entire inventory, it may return any unsold merchandise to the supplier without incurring any fees.
NetSuite & Consignment Inventory
For these collaborations to be successful, consignment inventory management technology must be chosen wisely. Organizations are better off using a specialized solution like NetSuite Inventory Management, which offers a single, real-time view of inventory across all locations and sales channels. Traditional inventory management tools often fall short when managing consignment inventory. This helps companies to prevent stockouts and free up cash by lowering their current inventory levels. In addition, companies can predefine fulfillment rules to prevent multiple shipments for a single order, automate inventory tracking, and dynamically manage item-reorder points and preferred stock levels based on historical and seasonal data with the help of the NetSuite Inventory Management solution.
In addition to helping businesses stay competitive and foster innovation, NetSuite’s Enterprise Resource Planning (ERP) System integrates inventory management to automate and optimize time-consuming and resource-wasting business operations.
NetSuite consignment inventory offers numerous benefits for suppliers and retailers who decide to join this arrangement. Effective communication between the retailer and supplier, a robust contract, and the appropriate technology for consignment inventory management and product tracking are essential to this model’s success. When implemented properly, consignment inventory may be advantageous for both the retailer and the supplier, leading to more product visibility, closer business ties, and higher sales.
Advantages & Disadvantages
Consignor Advantages
By using a consignment strategy with retail establishments, consignors can get their products into several shopfronts. This results in a bigger audience accessing the products due to their enhanced reach and visibility. As such, smaller companies or newly established suppliers may find consignment inventory very helpful.
Consignment inventory can be utilized to evaluate new goods and gather opinions from a wider range of customers. If this offers insightful information about the product’s reception, consignors may feel more confident about distributing. Consignors have the option to “test the market” before placing a sizable purchase for inventory.
Consignor Disadvantage
It is possible that a consignor of goods to a store won’t get paid in full until the stock has been bought. Depending on the conditions of their payment agreement, this may put the consignor’s revenue in danger. Consignment inventory might not be ideal for consignors who are low on funds, especially those who are smaller or just starting out.
Consignment inventory might involve upfront expenses for shipping, packaging, and other related charges when goods are placed in the store. These expenses won’t be recouped if the stock doesn’t sell, which might keep consignors from getting their money back.
Advantages for Retailers
Retailers’ financial burden is sometimes reduced when products are sold on consignment. Inventory does not have to be paid for in advance or acquired by the store before it is sold. This lessens the possibility that inventory won’t sell and might provide a safety net for shops that do not have the funds or resources to buy a lot of merchandise.
Retailers typically won’t need to store inventory when they sell on consignment. This offers a substantial space-saving advantage for merchants operating from smaller physical locations. In addition, it may facilitate simpler access to the rear of a store and free up space for other merchandise.
Consignment items can also benefit sales potential. Innovative and captivating products can attract more clients and boost sales. It’s also a fantastic way to stay current with fashions. Retailers can develop a current brand and offer greater variety by offering products from various consignors.
Disadvantages for Retailers
Retailers may incur higher carrying costs when dealing with consignment inventory. This is so that the retailer can pay for their own expenses (labor and additional shipping or handling), while the consignor usually sets their own prices. If retailers want to sell the products for more than the consignor’s recommended price, they might also have to tack on a greater markup.
Selling on consignment can present logistical challenges for retailers, and managing a consignment inventory can be difficult. There can be disagreements about how much stock is there, or things might not arrive as planned. Retailers could also have to monitor the consignor’s goods and make sure they get paid on schedule. It might need more time and money to complete this.
The Consignment Inventory FAQs
1. How does NetSuite consignment inventory impact inventory management systems?
Consignment inventory demands an inventory management system that could handle tracking the products belonging to a supplier rather than the retailer himself. Such a system should accurately track the movement of the product, sale, and return for correct accounting and reconciliation purposes.
2. What are the possible disadvantages of consignment inventory?
- The retailers are supposed to care for and protect the goods consigned to them.
- There can be disputes on prices or commission margins.
- In case the retailer’s systems of inventory management are not strong, the discrepancies in quantity cannot be reconciled and accounts cannot be reconciled accordingly.
- If the supplier does not deliver products in time or does not deliver them in good condition, this can adversely affect the retailer’s business.
3. How can retailers and suppliers help make a consignment relationship work?
- Set up open lines of communication so problems may be worked out quickly.
- Periodically review the performance to determine whether or not the consignment is meeting expectations. This allows making any changes as needed.
- Both parties sign the goals to ensure the situation is a win-win.
- The trust and transparency between the retailer and supplier are developed.
4. What are the legal implications of consignment inventory?
Agreements for consignment should be legally binding, specifying the rights and responsibilities of both parties. It always advises taking the assistance of a legal expert to frame proper agreements which fulfill all the related laws and regulations.
5. How can consignment inventory enhance supply chain efficiency?
The immediate benefits that can be had by both retailers and suppliers in the form of a consignment inventory are reduced inventory holdings. It will also enhance the forecasting accuracy for demand since it gives real-time sales data. Consignment arrangements will improve product replenishment to such an extent that it will reduce or totally eliminate the risk of stockouts.
