Consignment helps distributors expand market reach and increase product availability without requiring large upfront inventory investments. However, tracking stock levels, withdrawals, and movements across multiple locations can become challenging.
Without proper visibility, distributors may face stock discrepancies, delayed replenishment, and invoicing issues. A centralized system helps maintain inventory accuracy and supports day-to-day operations.
Definition of Consignment
Consignment is a business arrangement in which a seller, known as the consignor, sends goods to another party, known as the consignee, to be sold.
Ownership of the goods remains with the consignor until the items are sold to the end customer. The consignee only holds and sells the products on behalf of the consignor.
Consignment often involves manufacturers, distributors, and retailers. A distributor may send products to a retail store for sale. Payment to the distributor is made only after the goods are sold.
Examples of Consignment
Consignment is widely used in distribution to simplify the management of goods between owners and retailers.
To understand how it works in practice, here are several examples across industries:
- Food and Beverage
Distributors often place products in GT and MT outlets on consignment. The retailer displays and sells the products, and payment is made only for items that move off the shelf. Unsold stock can be returned or replaced depending on the agreement. - Electronics
A smartphone brand may distribute units to retail stores for display and demonstration. Stores can showcase multiple models without purchasing full stock upfront. - Pharmaceutical
A hospital pharmacy may receive medical supplies under consignment to ensure critical items are always available. Inventory is tracked at usage level, and billing is processed after consumption or patient administration. - Personal Care and Cosmetics
A skincare brand may place product testers and retail stock in beauty counters. - Cigarette and Tobacco
In some markets, tobacco products are distributed to high-traffic retail outlets. - Automotive Supporting Products
Frequently used spare parts and supporting automotive products are often stocked on workshop shelves. - Other FMCG Distributors
Many FMCG distributors apply consignment to manage fast-moving products across retail channels.
Consignment Process
The consignment process begins when the distributor delivers products to the designated outlet. The goods are stored and remain available for use according to the agreed inventory arrangement.
- Delivery
The distributor delivers products to the customer's designated warehouse. - Withdrawal
The customer withdraws the required products from the warehouse and receives a withdrawal document, which serves as the basis for invoicing. - Report
The customer reports the withdrawn products to the distributor. - Purchase Agreement
A purchase agreement is automatically established between the customer and the distributor when the products are withdrawn. - Transfer of Ownership
Ownership of the products is transferred according to the terms agreed in advance, either at the time of withdrawal or after payment. - Invoice
The customer receives an invoice for the products that have been withdrawn.
In a consignment arrangement, the distributor and the customer usually agree on a minimum inventory level to be maintained in the warehouse. If stock falls below the agreed threshold, the distributor is responsible for replenishing the inventory.
Invoices are issued based on the quantity of products withdrawn during a specific period. Depending on the agreement, invoicing may be conducted weekly, monthly, or quarterly.
The model offers flexibility for both parties. Customers can reduce the risk of dead stock and unsold products, while distributors can increase sales opportunities and expand market reach.
Benefits of Consignment in Distribution
- Wider Market Coverage
Consignment allows distributors to introduce products into new territories and customer segments with minimal upfront investment. By reducing inventory risk, distributors are often willing to carry a broader product portfolio and expand market reach. - Lower Financial Risk
Since inventory remains under a consignment arrangement until products are sold, distributors can reduce the financial risk associated with unsold stock. - Healthier Cash Flow
Payment to the supplier is made after products are purchased by end customers. As a result, distributors can manage working capital more efficiently while maintaining product availability in the market. - Easier SKU Expansion
With less capital tied up in inventory, distributors can offer a wider range of product variants. This creates opportunities to serve diverse customer preferences without increasing financial exposure. - Market Testing
New products can be introduced and evaluated under real market conditions without requiring a full purchasing commitment. Sales performance, customer demand, and market acceptance can be assessed before larger inventory decisions are made.
Improve Consignment Visibility with BOSNET Distribution Management System (DMS)
Increase consignment visibility with BOSNET Distribution Management System (DMS). Designed for distributors and FMCG businesses, BOSNET helps you create, manage, and track sales orders from a single platform. By digitizing order processing, businesses can reduce manual work, minimize errors, and improve transaction accuracy.
With real-time access to order data, inventory availability, and sales performance, your team can respond quickly to customer demand and make informed decisions. BOSNET DMS also helps improve coordination between sales, warehouse, and delivery teams, ensuring every order is processed efficiently and delivered on schedule.
Contact us today to learn how BOSNET DMS can help you improve consignment visibility.
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