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Consignment stock: definition and important aspects for buyers
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Consignment warehouse in a nutshell:
A consignment warehouse is a physical stock that is held by the customer but remains the legal property of the supplier until the goods are actually withdrawn. For purchasing, this means optimized capital commitment with high material availability at the same time, as invoicing only takes place when the goods are actually withdrawn.
Example: An automotive supplier stores fasteners worth 250,000 euros directly at the OEM, with payment only being made after the parts have been removed and the removed stock (an average of 15,000 euros) being automatically replenished and invoiced on a weekly basis.
Contents
What is a consignment warehouse?
A consignment warehouse is a special form of warehousing in which supplier management stores goods in stock at the customer's premises without ownership being transferred to the customer immediately. Ownership is only transferred from the supplier to the customer when the goods are removed from the warehouse. This model enables the customer to access required materials at any time without having to finance large inventory management costs, while the supplier builds up long-term customer loyalty.
Core elements of the consignment warehouse
Significance for purchasing
The consignment warehouse plays a strategic role in the procurement process by increasing liquidity and flexibility. For purchasers, this means less capital is tied up, as payments are only made when required. It also improves security of supply and minimizes the risk of supply bottlenecks. Close cooperation with the supplier allows processes to be optimized and costs to be reduced.
Guide: Everything you need to know about setting up and managing consignment warehouses in a legally compliant manner
Consignment warehouse: from traditional model to vendor managed inventory
Consignment stock has long been a proven concept for increasing security of supply and reducing capital commitment. In practice, it enables companies to access materials immediately without having to purchase them in advance. However, as digitalization progresses and supply chain requirements increase, it is becoming clear that traditional models are reaching their limits. A transformation towards more efficient and integrated approaches such as Vendor Managed Inventory is therefore necessary in order to remain competitive.
Old: Traditional consignment warehouse
Traditional approach:
In traditional consignment warehouses, goods are stored at the customer's premises but remain the property of the supplier until they are removed. The customer reports its consumption manually or periodically to the supplier, who then replenishes the stocks. This process is often characterized by manual data exchange, telephone coordination or simple e-mail communication. The lack of real-time transparency leads to challenges such as overstocking, stock shortages and increased administrative effort. In addition, manual data entry leads to errors that impair efficiency.
New: Vendor Managed Inventory (VMI)
Vendor Managed Inventory:
The modern VMI approach integrates suppliers closely into the customer's warehousing processes. The use of electronic data interchange (EDI) and networked IT systems gives the supplier real-time access to inventory and consumption data. This enables proactive control of replenishment processes, with the supplier assuming responsibility for inventory optimization. Automated ordering processes reduce administrative effort and minimize the risk of stock shortages or overstocking. The increased transparency strengthens cooperation and promotes a strategic partnership between both parties.
Practical example: Mechanical engineering industry
A medium-sized mechanical engineering company has implemented VMI in cooperation with a main supplier. By networking the ERP system with the supplier, they were able to reduce stock levels by 25%. At the same time, they increased their delivery capability to 98%. Automated replenishment control made it possible to react flexibly to short-term changes in production. This led to a 15% reduction in capital commitment costs and a 40% reduction in missing parts.
Conclusion on the use of consignment stock
Consignment warehouses offer an effective solution for optimizing the supply chain by reducing capital commitment and at the same time increasing security of supply. Success depends largely on a clear contractual structure and trusting supplier relationships. The concept is constantly evolving through the integration of modern technologies and is becoming increasingly strategically important for companies.
