Consignment inventory management systems are often overly complicated. Managing consignments correctly, keeping track of stock, and making appropriate payments reflecting recent sales requires care and diligence. Here are seven consignment inventory management best practices to use to avoid making mistakes and foster good business relationships.
1. Watch Term Limits with Disappointing Sales
For retail stores or boutiques that have taken goods on consignment, it’s necessary to be careful around term limits. Keeping an inventory of goods that haven’t sold well and are taking up space in the warehouse limits what other stock can be accepted. When the newer lines of goods could sell with greater profitability and the term limit has expired on other consigned goods that sold poorly, it’s important that retail stores and boutiques don’t dawdle with returning items.
2. Avoid Oversupplying Goods as a Consignor
The consignor – the product supplier – needs to manage what products they produce or order from a third-party manufacturer that they re-label. Ending up with too much inventory of an untested product creates potential issues later. It’s always a tricky balance between having too much product on the shelves ready to supply to retailers and too little to satisfy orders. That applies whether they’re sold directly or provided on assignment.
Nevertheless, as noted here, there are advantages to being a consignor, including:
• smaller inventory storage needed
• the ability for stores to examine the merchandise beforehand
• a greater chance that a retail store will take a chance on a new brand or product line
3. Use a Mutually Agreeable Contract
The contract that’s agreed between the consignor (the producer) and the consignee (the owner) must allow both parties to profit. A contract where one of the parties faces a loss even in the best-case scenario is an unfair proposal. So, contracts must include:
• a sustainable commission rate for sales
• precisely defined shipping costs (in both directions)
• a clear return policy and a detailed procedure for returning unsold goods
• confirmation methods for new sales
Contracts that fail to include the necessary details will cause misunderstandings and potentially lead to legal disputes. Clarity is the best policy here.
4. Consignment Inventory Software Is a Must-Have
Operating with consignment inventory software is necessary to protect both sides. A manual system is prone to mistakes, poor communication, and lost information.
Ideally, inventory software should be accessible on the web, within popular operating systems like Windows or Apple, and cross-platform on mobile devices, too. Data should be easily shareable between both parties to speed up the information flow for sales, purchases, and returns. Support for barcodes and multiple locations for goods storage should also be included.
5. Create Joint Opportunities to Win
With consignment inventory agreements, there is a much tighter relationship between both parties. It’s necessary to demonstrate that you’re both effectively rowing in the same direction. With improved communication, it’s possible to better anticipate the need to have more stock ready to ship (should the consignee wish to receive it).
Also, the consignor doesn’t want to discover that their goods are displayed in the back of the store and aren’t selling well as a result. This creates an increased likelihood that the term limits before goods can be returned will get triggered, which won’t be fair on them.
6. Consignors Shouldn’t Only Sell on Consignment
Consignors have to avoid falling into the trap of only selling on consignment. While consignees need to know that their consignors are fully committed long-term, they should also be aware that the latter will utilize multiple sales channels. Furthermore, this may include making more traditional sales agreements, sales to wholesalers, online sales, and so forth. No one should be surprised by this or feel duped either.
7. Discuss Problems Early and Often
There can be a tendency with salespeople who get paid on commission to sell new product lines to retail chain stores and then rapidly move on to the next client. Less thought is paid to developing this valuable relationship to maintain the connection.
With consignment inventory, the consignee must never be made to feel this way. They must feel fully supported, even to the point of creating a response team to sort out any issues quickly. This way, the consignee can see and feel that the commitment to the contract goes beyond the legal agreement – in other words, that it matters to both parties. After all, just like friendships, business relationships are only properly tested when difficulties are encountered.
Final Thoughts
Adhering to these practices for inventory consignment deals will help you avoid mistakes and unnecessary difficulties. Just keep in mind that clarity from both sides is vital in order to achieve a good outcome for all.
