Essentially, consignment inventory is when the supplier has their goods in another retail store or outlet. However, the store or outlet has not purchased the inventory yet. 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 for the supplier with consignment inventory.
For example, a small jewelry designer may use consignment to enter local shops, galleries or larger chain stores. Once their product is placed in the larger chain, it can make the designer’s jewelry more visible and expand their potential market. Placement through consignment inventory makes entry into the market easier and can help get a small designer’s name known. As a small business, the overhead costs of owning their own shop may not be financially feasible.
Why do consignment?
There are many benefits of consignment inventory for both parties, but there are also several disadvantages. Using consignment can allow a supplier to enter new markets that would have been previously unattainable giving them new exposure. People in the store would be able to try on the jewelry, see the textures and designs close up and appreciate the materials. Jewelry is often a very personal product so it is important for a supplier to have in-store exposure. However, a retailer may be ambivalent about stocking a product that’s selling power is questionable. A supplier’s enthusiasm and confidence about the product is often greater than the retailer. Hence, the supplier would offer to stock the product in the retail store for free. The retailer is able to provide a higher service level but having the stock on site. The retailer may save on initial inventory investment, but risks sacrificing the space on the shop floor to house the product.
Stocking the jewelry in a variety of retail stores as consignment inventory can prove very efficacious. If the supply is spread around a variety of different bases, there is more opportunity to sell the stock. However, it is imperative to be clear on agreements between each retailer. Topics that would be pertinent to both parties include, how long they product will be carried in the store, the freight policy, the return policy insurance, and many more impactful subjects.
Tracking consignment inventory
It is very important to be able to track the goods. There are various tracking methods for consignment inventory. Each model will suit different suppliers and retailers, but it is essential to have good tracking software. Even though the consignment inventory process might start small for the jewelry designer, it is necessary to be organized from the start. Using antiquated methods like pen and paper will not suffice, it is easy to lose count or misplace documentation.
Therefore, good tracking software is integral to the success of this process. It is important to be able to track where all of the products are located and recognize trends. Tracking software can also identify where the products are selling well. This information allows the supplier to tweak how much of each product line they are providing to the retailer.
Ultimately, this provides you with good data, allowing you to make good business decisions. Effective tracking software, alongside good relationships between suppliers and retailers, can make consignment inventory an advantageous business decision.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.