Consignment is a concept similar to renting out storage space to others. During consignment, the store or consignee does not need to purchase the inventory, and the consignor or supplier typically has the authority to decide whether the goods will be sold or transferred elsewhere. Instead, the consignee charges the consignor storage fees or service fees by providing safekeeping services, and in some cases, assisting with packing and shipping.
Physical consignment: The consignee or venue provides physical locations, such as department store counters or display booths, where consignors can display their products. In this arrangement, the consignee typically charges fees based on the days or months, while some locations may also take a commission after sales are made. Sales staff at certain locations may also assist with product promotion.
E-commerce warehousing: This is a common model in today's online marketplace. Small sellers who cannot afford their own warehousing costs can work with e-commerce platforms or third-party logistic providers. When stocking inventory, the sellers ship their products directly to the partner's warehouse. This allows sellers to focus on marketing, while the platform or warehousing partner handles inventory management and order fulfillment.
In inventory management, consigned goods require a dedicated workflow and should not be confused with purchasing or procurement. For example, consigned goods do not generate accounts payable when they are received. Additionally, accounts receivable is generated only when goods are sold. During inventory counts, compensation should be paid to the consignor if the consigned goods are found to be missing, and this can depend on the product's cost or the amount specified in the contract. This is opposed to writing off inventory losses as operating expenses.
