In the realm of supply chain management, the consignment process plays a pivotal role in enabling businesses to leverage inventory that they do not own. This process involves a consignor, who possesses goods intended for sale by a consignee, without transferring ownership until the items are sold. To delve deeper into this concept, let’s explore the key steps and nuances of consignment, as outlined in a recent video from BlueHub featuring Sean.
The Core Concept
The essence of consignment lies in the ability to access goods for sale without immediate ownership. This often pertains to scenarios where the consignee (the seller) does not physically hold the inventory but has visibility over its availability and can initiate sales transactions. Crucially, this arrangement ensures that the consignee’s valuation remains accurate and compliant with legal standards.
Visibility Without Ownership
One of the primary challenges addressed by the consignment process is maintaining visibility over stock levels without the associated ownership. Sean emphasises the necessity of ensuring that there is no monetary value attributed to the consigned stock within the consignee’s valuation, which could otherwise lead to regulatory issues.
The Stock Adjustment Process
To initiate the consignment process effectively, a stock adjustment method is employed instead of a traditional purchase order, given that the consignee does not own the stock outright. This adjustment involves raising a stock entry reflecting the entire quantity of consigned goods initially, followed by subsequent adjustments for new batches brought in by the consignor.
The first adjustment sets the consignment location (or supply point) within the inventory system, allocating a zero unit cost to signify that ownership remains with the consignor. Subsequent adjustments reflect additional stock deliveries from the consignor, ensuring accurate tracking within the consignee’s inventory.
Sales Execution and Invoicing
Once consigned stock is requested for sale, the consignee can execute a stock transfer within their inventory system. This process involves transferring consignment items to the location where sales occur. An order is then placed against this transferred stock, generating a transfer order to inform the consignor of the required goods.
Upon dispatch of the goods, the consignee receives an invoice from the consignor. This invoice is then processed within the inventory management system by creating a service purchase entry, detailing the consigned items’ cost and allocating it to an expense account rather than an asset account.
Compliance and Valuation
A critical aspect of the consignment process highlighted by Sean is the importance of adhering to legal compliance regarding stock valuation. By accurately tracking the inflow and associated costs of consigned goods, businesses ensure that their financial reporting remains transparent and compliant with regulatory standards.
Conclusion
In conclusion, the consignment process offers businesses a strategic method to access and sell goods without immediate ownership, fostering operational flexibility and efficient inventory management. Understanding and implementing this process requires meticulous attention to detail, particularly concerning stock visibility, cost allocation, and legal compliance.
We hope this detailed guide provides valuable insights into the consignment process as explained by Sean from BlueHub. Should you have further inquiries or require assistance in optimising your inventory management strategies, please do not hesitate to reach out to our team.
See full video here: https://youtu.be/JRNuWwPyW7Y
