Consignment is a widely used Order to Cash process which is conceptually different from generic sales process. Not only from sales, it is different even from logistics and finance perspective. Since it is widely used by businesses, it is a very important concept to understand.
Consider company Lawn Mowers Co. who sell lawn mowers in the Midwest. It is a small company and does business through major outlets like Walmart. They don’t have a store of their own. Since Lawn Mowers Co. is not a very identifiable name among consumers, outlets do not want to buy an inventory because it might not sell well. Hence Lawn Mowers Co. and outlets, by mutual agreement, prefer a consignment model.
What is a consignment model? Lawn Mowers Co. sends lawn mowers to Walmart and outlet stores at Walmart’s outlet warehouse. It remains at outlet’s property till the lawn mower is either sold further or returned back to Lawn Mowers Co. Ownership remains with Lawn Mowers Co. as long as the lawn mower remains on outlet’s property.
The actual sale happens when Mike goes to the Walmart and buys the lawn mower. At this point ownership changes.
There are four processes in the realm of consignment process –
- Consignment Fill-up
- Consignment Issue
- Consignment Return
- Consignment Pickup
These topics will be taken up in a future post.