Credit Management magazine April 2018

ASK THE EXPERTS
How do consignment
stock arrangements
work, and what are the
benefits?
AUTHOR – Nigel Fields FCICM
CONSIGNMENT stock agreements
are becoming increasingly
popular especially among some
of the larger retailers. It is
basically a supply chain management
strategy in which retailers
hold products from their suppliers in store for
sale without actually paying the supplier for
the products until they get purchased by the
end consumer.
This process has both advantages and disadvantages
that I note from my own experience of
using this process.
ADVANTAGES FOR THE SUPPLIER
• A good marketing tool to ensure products are
put into stores for purchase
• Allows the seller to get products into the
retailer that may not otherwise have been
ordered
• Allows for continuity of business when
retailers might otherwise decide to reduce
product lines
• Allows both supplier and retailer to
maximise sales
• Payments are made only for true sales to
consumers thus ensuring best product ranges
to consumers
• It reduces inventory and warehouse holding
costs
• Ownership and title of unsold products
remain with the supplier and are clear
• Payment terms are often shorter than with
standard credit sales
• The supplier also gets good visibility of what
is and what is not selling.
ADVANTAGES FOR THE RETAILER
• Less cost of sales on their P&L
• Better perceived margins
• The retailer is able to have a wider range of
products to bring in increased footfall and
sales
• The retailer only needs to pay when he sells
the items
• Less hassle to ensure the best product ranges
are on sale
• The supplier is more likely to price adjust for
promotions etc.
DISADVANTAGES FOR THE RETAILER
• Shelf space if the consigned goods don’t get
sold
• Different processes to manage inventory
related to consigned and other goods
• Possible loss of focus on product ranges
• Generally shorter payment terms
Consignment selling may or may not be
attractive to you. It depends on your situation
and your systems. It might be a good way
to learn how or if a new product will sell.
It may get you shelf space that you might
otherwise have been declined. Keep in mind,
however, that you tie up your funds waiting for
merchandise to be sold. Also, the retailer may
still be a poor credit risk.
Nigel Fields is Director
of 20th Century Fox
DISADVANTAGES FOR THE SUPPLIER
• Increased shipping costs for the new
inventory, the sale of which he is not sure of
• Risk of loss or damage to the product or sale
• Reliance on retailers to correctly track sales
• Reliance on retailers to maximise product
exposure
• Reliance on retailers to continue to support
the product lines
• Tying up funds waiting for merchandise to
be sold
• The retailer may be a poor credit risk and not
able to transfer funds after selling goods
• Ensuring systems can cope with the new
processes.
The Recognised Standard / www.cicm.com / April 2018 / PAGE 52