Consignment sales are a very interesting approach to selling products. Like any sales strategy there are always advantages and disadvantages to any approach. Consignment is effectively when a supplier stocks their goods in another retail store or outlet. The catch is that the store or outlet has not yet purchased the inventory. In the consignment scenario, the retailer agrees to sell the stock in their store, but it is still owned by the supplier. The retailer purchases the stock from the supplier after it is sold. Therefore, there is a large amount of risk on the supplier with consignment inventory.
Why should businesses sell their stock on consignment?
Selling products under consignment can support suppliers to embark in new markets and enter the playing field. Often, owning a store involves too many overheads in comparison to the actual product, which makes the barriers to entry very large. Consignment is beneficial as it puts inventory in front of your customer and they can interact with the product. Their senses can be stimulated. They can try it on, they can feel it, or test it out before they buy it. Consignment is great for giving suppliers the exposure they need.
How can your inventory management benefit?
Inventory is somewhat non-traditional when it comes to consignment selling. If you are the retailer, also known as the consignee, you will save on inventory costs. The retailer doesn’t have to put capital upfront to purchase stock. Rather their inventory control costs are relatively cheap, as they fall onto the supplier. Therefore, a retailer may have large expenses and fixed overhead bills, but their inventory costs are very minimal. Hence, cash flow is improved for the retailer in consignment situations.
A mutual benefit for suppliers and retailers is a decreased lag time when restocking their inventory. By the time stock is depleted, it is in the best interest of both parties to replenish the stock levels quickly. Inventory control is made more efficient due to the potential of lost business. Since the supplier and retailer both want inventory restocked as soon as possible to capitalise on business, there are strong motivators to make this happen promptly.
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The downsides of managing consignment inventory
Although there are strong motivators to maintain good inventory levels, consignment inventory can be difficult to manage. A supplier may have products in 20 different consignment shops in the city. It’s important to track all the stock to make sure it is accounted for and in the correct location. This type of inventory control is too complicated to manage on a spreadsheet.
Luckily, online inventory management software can provide solutions to approach this unique type of inventory control. As a supplier, you can set up different consignment retailers as different stock locations in the system. With this information at your fingertips, you will have the ability to create a stock transfer for sales orders and check stock levels at different locations as they change.
With an online inventory management system, consignment shops can take on the work of displaying an item and exposing it for retailers. Then retailers can conveniently track their product sales, stock levels and trends across shops.