What is Consignment Inventory?

Consignment inventory is a supply chain arrangement where the supplier retains ownership of goods until the retailer sells them to end customers. The retailer stores and displays the products but does not pay for them until a sale occurs. Unsold goods can typically be returned to the supplier without penalty. This model shifts inventory risk from the retailer to the supplier while giving the supplier access to the retailer’s sales channels and foot traffic.

Why It Matters

Consignment inventory fundamentally changes the economics of stocking products. For retailers, it eliminates the upfront capital investment required to carry new or unproven product lines. For suppliers, it provides shelf space and market exposure that might otherwise be difficult to secure. This arrangement is particularly common in industries with high product uncertainty, long selling cycles, or where suppliers want to maintain control over their brand presentation.

However, consignment adds complexity to inventory management. The retailer must track goods they don’t own, report sales accurately to the supplier, and maintain separate accounting for consigned versus owned inventory. The supplier needs visibility into stock levels at each retail location to manage replenishment and avoid stockouts.

How It Works

• Agreement: Supplier and retailer establish a consignment agreement defining terms including pricing, reporting frequency, return policies, damage liability, and minimum display requirements.
• Delivery: The supplier ships inventory to the retailer’s location. The goods are recorded as the supplier’s asset, not the retailer’s. The retailer logs them as consigned inventory for tracking purposes.
• Sales: When the retailer sells a consigned item, ownership transfers and the retailer owes the supplier the agreed wholesale price. The retailer keeps the margin between the wholesale and retail price.
• Reporting: The retailer periodically reports sales of consigned goods to the supplier, triggering invoicing and payment. Accurate reporting is essential for the supplier to manage cash flow and replenishment.
• Returns: Unsold consigned goods are returned to the supplier or rotated out per the agreement terms. The retailer bears no financial loss on unsold consignment inventory.

How Nventory Helps

Nventory tracks consignment inventory separately from owned stock, providing clear visibility into what you own versus what you hold on behalf of suppliers. The system automates sales reporting to consignment partners, calculates payables based on actual sell-through, and ensures consigned goods are properly excluded from your owned inventory valuations and COGS calculations.