Consigned Inventory

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Consignments Using Oracle Applications Badri
Herur Summer 2003
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Table of Contents

• Business Case
• Process Flow
• Industry Standard
• Oracle Standard (Using Internal Requisitions)
• Inventory Transfer to Consignment
• Consumer Sales from Consignment
• Inventory Adjustments for Shrinkage
• Deployment
• Internal Sales Orders
• Replenishment
• Key Considerations
• Future Considerations
• Q A

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Business Case

• Consignment can be misunderstood to be the same
  as giving the customer an interest free loan.
• Most manufacturing and distribution companies
  hold finished goods inventory for customers. This
  stock of finished goods inventory usually buffers
  the manufacturers against fluctuations in demand.
  Stocking finished goods is not free or cheap.

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Business Case - Inventory Carrying Costs
David Ross, author of Distribution Planning and
Control, mentions that most companies incur an
annual inventory carrying costs ranging from 20
to 36 percent. 
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Business Case

• Manufacturer / Distributor retains valuation of
  consigned inventory
• Customer is responsible for Inventory Maintenance
  and Accuracy
• Customer is Responsible for Providing a Forecast
  Plan and Notification of Consumed Product

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Process Flow- Industry Standard Process Flow
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Process Flow- Oracle Standard Process Flow
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Process Flow- Inventory Transfer to Consignment
Location
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Process Flow- Consumer Sales from Consignment
Location
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Process Flow- Inventory Adjustments for Shrinkage
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Deployment- Why Internal Sales Orders?

• Material is transferred between internal
  organizations without revenue or invoicing
• Can control invoicing of customer to final
  consumer sales
• Ability to segregate inventory by organizations

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Deployment - Replenishment Process

• Customer Places Replenishment Order for
  Consignment Items
• Manufacturer ships sales order to consignment
  location (Customer location treated as internal)
• Order shipment moves goods to in-transit
• Receipt Notification from customer will cause
  inventory to be received into consignment
  location
• Customer Consumer sales and returns are managed
  out of consignment location

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Key Considerations

• Performance Indicators and Measurements
• Inventory Value, Inventory Turns, and Fill Rate
• Inventory Tracking
• Level of Consigned Inventory
• Slow moving Inventory
• Damaged or Lost Inventory

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Future Considerations

• Collaborative Planning and Forecasting
• Manufacturer/Distributor ownership of planning
  and forecasting for consigned inventory
• Migration to Vendor Managed Inventory

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Q A