What Is Consignment Inventory?
Also known as: Consigned Stock, Vendor-Owned Inventory, Customer Consignment
Definition
Consignment inventory is stock physically held by one party, such as a manufacturer or retailer, but legally owned by the supplier until it is consumed or sold. Ownership and the liability transfer at the point of use or sale.
Consignment Inventory Explained
In vendor-managed or supplier consignment, the supplier places parts in the customer's plant or warehouse and keeps title. The customer records no asset and no payable until it pulls the item into production or sells it. This shortens lead time and removes carrying cost for the customer, while the supplier gets a committed channel and often visibility of usage. Customer-side consignment is the reverse: a manufacturer places finished goods at a customer or distributor and keeps title until the customer sells or consumes them.
ERPs need to separate owned stock from consigned stock. Quantity on hand is visible to planning and picking, but its value must stay off the balance sheet and out of owned inventory valuation. SyteLine, NetSuite and Infor LN all handle this with consignment locations or ownership flags that exclude the stock from inventory value, and a consumption transaction that triggers the liability and the invoice or purchase order receipt when stock is used.
Reconciliation is the main operating risk. Both parties should reconcile on-hand quantity regularly, typically monthly, since a gap means either an unbilled consumption or stock the supplier believes is still available. Define in the agreement the consumption trigger (issue to job, shipment to customer), pricing, payment terms, minimum and maximum levels, counting rights and what happens to stock that becomes obsolete.
Accounting treatment depends on who bears the risks and rewards of ownership. Under IFRS 15 and ASC 606 the supplier recognizes revenue only when control transfers, which is usually on consumption for a true consignment. Check with your auditors before relying on shipment date.
Why It Matters
- Consignment moves carrying cost and obsolescence risk to the owner, which affects pricing and contract terms.
- Misclassified consigned stock overstates inventory or leaves unbilled consumption, both of which hit audits.
- Planning must see consigned stock as available supply while valuation must exclude it.
- Without regular reconciliation, disputes about usage and payment grow quietly.
In Practice
Example: a fastener supplier keeps 5,000 screws in your stores at 0.10 each. You pull 800 for a job. At that issue the system should create a liability or receipt for 80.00 and reduce consigned quantity to 4,200, while the other 4,200 stay off your balance sheet.
Frequently Asked Questions
Who owns consignment inventory?
The supplier or consignor keeps title until the stock is used or sold. The party holding it controls it physically but does not record it as an asset.
When does the buyer pay for consigned stock?
When the agreed consumption trigger occurs, usually when parts are issued to production or sold. The agreement defines pricing and payment terms from that point.
How do ERPs separate consigned from owned stock?
With consignment locations or ownership attributes that exclude the quantity from inventory valuation, plus a consumption transaction that creates the liability.
What is the difference between consignment and vendor-managed inventory?
Vendor-managed inventory means the supplier controls replenishment. It can be owned by the buyer. Consignment concerns title, which stays with the supplier until use.
Related Terms
Perpetual Inventory System
A perpetual inventory system updates on-hand quantity and inventory value in real time with every receipt, issue, transfer and adjustment, so book balances are always current. A periodic system updates only after a physical count.
Cycle Counting
Cycle counting is the practice of continuously verifying inventory accuracy by counting a small subset of items each day or week, rather than shutting down for one annual wall-to-wall physical inventory.
Kanban
Kanban is a visual pull system in which a card, bin, or electronic signal authorizes production or replenishment of a specific part only after downstream consumption, capping inventory at the number of signals in circulation.
Three-Way Match
A three-way match is the accounts payable control that compares the purchase order, the goods receipt, and the supplier invoice on quantity and price before releasing payment, ensuring a company pays only for what it ordered and actually received.
Obsolete Inventory (Excess and Obsolete Stock)
Obsolete inventory is stock with little or no expected future sales or usage because of design changes, end-of-life products, demand decline, or shelf-life expiry. Excess inventory is stock above forecast need. Together they are called E&O.
Go Deeper
Inventory Carrying Cost Calculator
Build your true annual carrying cost from capital, storage, insurance, and obsolescence components - and see what an inventory reduction target is worth.
How to Configure Consignment Inventory in SyteLine
Step-by-step guide to setting up consignment inventory in Infor SyteLine CloudSuite Industrial, including vendor-managed stock, consumption reporting, and billing workflows.
Working with Consignment Inventory in a live environment? Our engineers do this every day - and our AI agents automate most of it.