Consigned Inventory

An Implementation guide

Sandeep Gandhi
Supply Chain Consultant
Omkar Technologies Inc
sandeep.gandhi@omkarinc.com
 What is Consigned Inventory
• Consigned inventory is a practice where
inventory is in the physical possession of
one party but remains the property of
another party.
 What is it not
• It is not Lean
• It does not make supply chain more
efficient
• It is not a free ride for customers
 Swimlane Diagram
Consigned Inventory Process

Ship
Supplier

Consigned Invoice
PO Customer
Purchasing

Covert
requisitions
into
Consigned PO
Planning

Create
START Requisitio
ns
Warehouse

Issue to floor
Receive
as requested
Accounts
Payable

Pay Invoice End

Tag material Change Create

System

as Supplier ownership Blanket PO

owned. to WMS. Release
 Implementation Steps
• Negotiations with supplier
• Physical set-ups
• System setups – one-time
• System setups – recurring
• Training and Execution
• Monitoring
 Supplier Negotiations
• What constitutes usage
– Movement out of warehouse to floor / shipping area?
– Actual usage in product?
– Completion of wip job / shipping transaction?
• Terms
– Maximum duration the inventory can be held on consignment
– Changes to Invoicing terms (if any)
– Return terms
• Auditing
– Need separate storage area?
– Supplier inspections (Scheduled / Unscheduled)
• Liability
 Physical Setups
• A separate physical location
• Cages – by items / suppliers?
• New access procedures
– Lock-n-key?
– Restricted badges
One Time Setups
 New Subinventory
Inventory Setup > Setup > Organizations > Subinventories > New
 Consumption Transactions
Inventory Setup > Setup > Organizations > Subinventories > New
Create Consumption Advice
Inventory > Reports > Transactions > Single Request > Create
Consumption Advice
Recurring Setups
Update Flag on Org Item Master
Inventory > Items > Organization Items > General Planning
Create ASL Relationship
Purchasing > Supply Base > Approved Supplier List
Create ASL Relationship
(continued)
 Swimlane Diagram
Consigned Inventory Process

Ship
Supplier

Consigned Invoice
PO Customer
Purchasing

Covert
requisitions
into
Consigned PO
Planning

Create
START Requisitio
ns
Warehouse

Issue to floor
Receive
as requested
Accounts
Payable

Pay Invoice End

Tag material Change Create

System

as Supplier ownership Blanket PO

owned. to WMS. Release
 Training & Execution
• Get all stakeholders involved
• Get them to understand the process end-to-end
• Start with just one supplier and a few items
• Checklist for each item going on consignment
– Warehouse cage setup
– Blanket PO Created
– Item Master Updated
– ASL updated
– Old PO’s fully received
Monitor – onhand quantity
Monitor Transactions
 Monitor Invoices
• Make sure supplier does not invoice
against the consigned PO
• AP can not do 3 way match on releases
submitted for payments
 Gotchyas
• Clean up old purchase orders
• ASL setup needs to be local if turning
consignment on for just one org
• KANBAN items
• Picking order
• Multi-sourced items
• Consume in lots
 Summary
• Benefits
– Reduced lead times because material is held on-site
– Deferring payment (you pay when you use; not when
you receive)
– Better looking balance sheet
• Drawbacks
– A little more complicated process
– Needs more setups on the floor / warehouse
– Short term financial gains may be negated if supplier
starts passing off holding costs
 Food for Thought
• RFID integration
• iSupplier Integration
• VMI Integration
• Consigned Inventory From Supplier
Process Guide Part No. B10483-03
Q&A