Tuesday, August 14, 2012

Consigned Inventory (CI) Vs Vendor Managed Inventory (VMI)

Consignment and Vendor Managed Inventory Module

Consignment Inventory is inventory that is in the possession of the customer,but is still owned by the supplier. In other words, the supplier places some inventory at the customer’s location. The customer purchases the inventory only after he has resold or consumed it. The liability of loss, damage, obsolescence and theft remains with the supplier.

As a manufacturer you may have consignment inventory at your customers and you may also have to contend with consignments from your Vendors. Most ERP systems have difficulty with consignment inventory. With consignment inventory the invoicing is not tied to the shipment or receipt transaction. This requires companies to manage consignment inventory with cumbersome time consuming and error prone processes. Typically both the Customer and Vendor maintaining separate spreadsheets. There are several trigger points to the actual ownership transfer and billing transaction:
  • Invoice when product is actually used or sold
  • Invoice after a pre-defined period is offered
  • Invoice when used or after a pre-defined period -which ever comes first
  • Invoice when next consignment order is placed,previous is billed

Consignment Inventory sent to your Customers

Now you can gain complete visibility into your customers' inventory. The consignment inventory feature is offered as an enhancement to the standard Premises inventory module. With the Premises inventory consignment module, you’ll know what is on hand in your customers' inventory and have the ability to easily transfer the inventory to different locations. Consignment inventory is fully integrated into sales,shipping, accounting and scheduling functions within Premises.

Customer Consignment Inventory lets you plan, order, ship, track and report customer-consigned material, while at the same time deferring invoicing and accounts receivable (AR) transactions.
  • Ship products to your customer and retain ownership until the product has been consumed
  • Maintain accurate financial physical inventory records from shipment through consumption
  • Transfer consignment inventory from warehouse location to Customer Bill Bill to or Customer Ship To (For Dealers or Reps)
  • Include Serial or Lot numbers on Packing Slips and Invoices
  • Create Transfer packing Slips for all consignments shipped and transferred
  • Get online view of consignment inventory on hand a for each customer bill to and ship to
  • Relieve the consignment inventory at invoicing
  • Obtain consignment reports for valuation,insurance and collateral purposes
  • Issue RMA's so customers can return consignment inventory
  • Get automatic notification when pre-defined billing date arrives to submit invoice

Consignment Inventory received from your Vendors

Now you can gain complete visibility into vendor's consignment inventory located on your premises. Vendor consignment inventory is fully integrated into purchasing,receiving, accounting and scheduling functions within Premises.

Vendor Consignment Inventory lets you plan, order, ship, track and report vendor-consigned material, while at the same time deferring payment and accounts payable (AR) transactions.
  • Receive products from your supplier and without transferring ownership until the product has been consumed
  • Maintain accurate financial physical inventory records from receipt through consumption
  • Include serial or Lot Numbers on all consigned inventory
  • Create Receiving Logs for all arriving consignments
  • Get online view of consignment inventory on hand and for each vendor
  • Create Payment Authorization when product is consumed
  • Integrated to Electronic Kanban for re supply triggers
  • Create Vendor Return to return consignment inventory
  • Get automatic notification when pre-defined billing date arrives to approve payment
  • Flexible payment triggers
(1) Transferring items from a consignment inventory location
(2) Sending consignment material for outside processing
(3) An adjustment triggered by a Physical Count
(4) When back flushing product from production
(5) When creating the next reorder

Attach Consignment Terms and Conditions Document

It is important when engaging in Consignment practices to accurately document all terms and conditions. There will likely be thousands or tens of thousands of dollars at risk and disagreements can be expensive to resolve.

Ensure the following issues are covered in the terms and conditions:
  • Who manages security and access?
  • Who pays for damage, loss, shrinkage or theft?
  • What activity triggers the transfer of ownership and invoicing of consigned inventory?
  • What physical access frequency does the vendor have to inspect inventory on hand?
  • Who maintains insurance coverage?
  • Steps vendors will take to protect consigned product from customer’s creditors or bankruptcy
Vendor Managed Inventory programs have the potential to deliver huge benefits to both the supplier and vendor by improving material availability while decreasing overall inventory levels across the supply chain.

10 comments:

  1. I hope this article is beneficial to businesses, because it provides benefits of vendor managed inventory programs.















     Invoice Template 

    ReplyDelete
  2. Hiii....
    I appreciate the ideas and this is very nice article and have great information.and NTL
    Logistics Plus is provides Vendor Managed Inventory(VMI) Program in India.

    ReplyDelete
  3. A great article! Where can I find more information about setting this up in Oracle EBS? I saw another article on docstoc.com were they used a combination of OM setups and customization to achieve this, but it was done on 10.7. Hopefully R12 has more to offer.

    ReplyDelete
  4. Anonymous6:46:00 PM

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  5. Hi, can you please share setup in oracle for consigned inventory.

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  6. Thank you and good article to understand the Consigned Inventory process. Can you explain VMI concept as well. The article only explains about the Consigned!!

    ReplyDelete
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