Today’s wholesale distributors face a number of challenges, particularly if they are dealing with consignment stock. Here we go through some of the issues they are facing, and explain how a cloud-based solution, such as NetSuite, could help.
What is consignment stock?
Consignment stock is inventory that is in the possession of the customer (i.e. the retailer), but is still owned by the supplier. The supplier gives some of their inventory to the customer (to go in their shop or warehouse), but the customer only purchases the stock after they have resold it.
This can be beneficial for both the supplier and the customer because the risk is shared – the supplier risks the capital investment associated with the inventory, but the customer risks dedicating retail space to something that might not sell.
The consignment stock business model is useful when using new sales channels, when dealing with new and unproven products, or with very expensive products that the retailer is not confident will sell.
It is commonplace in the agricultural and agri-chemical sectors where it is an expected format of the supply chain.
It can also be effective when dealing with machine parts for critical equipment where the customer would not stock certain parts due to budget constraints or demand uncertainty. In this situation, the supplier allows the customer to have the parts immediately, whilst saving on freight costs, and ensuring the customer does not procure a replacement part from a competitor.
What’s the problem?
Wholesale distributors managing consignment stock face the challenge of importing this inventory into their sales system, whilst having no impact on their balance sheet and P & L until the point of sale. Many inventory systems struggle to cope with the correct treatment of this business model to enable self-billing at the point of sale.
This means it is difficult to track orders and report stock on their balance sheet, and forces them to use manual processes and rely on spreadsheets in order to keep on top of their stock and finances.
It also provides a challenge to enable purchased stock to be prioritised over consignment stock and also manage stock levels across both formats.
Reconciling consignment inventory can be difficult, particularly if they are relying on customers to record stock levels and sales. Item-level detail is required as customers might not know when to re-order stock, or what might have passed an expiration date.
And if a company is dealing with multiple customers at several (or even hundreds) of different locations, then they will be dealing with lots of individual purchase orders and high delivery costs. This can be extremely difficult to manage if they don’t have the right software in place – especially if they are dealing with small numbers of many different types of items.
How can NetSuite help?
NetSuite allows you to consolidate your inventory systems into a single, integrated warehouse inventory control solution. Completely integrated with NetSuite financials and CRM capabilities, you get complete visibility into all demand and supply measurements across your entire organisation and can tie demand and supply planning to critical business processes.
The ability to manage and report on hundreds of different locations through the NetSuite interface is possible with our NetSuite Consignment Stock Management SuiteApp. Whether you run multi-location inventory, or wish to take advantage of advanced features such as reorder points, lead times and seasonal cycles, the Consignment Stock Manager will use as much of the functionality as you have available.
- Accurate reporting – report stock on your balance sheet across hundreds of different customer locations. Consignment stock belongs to you up to the point where it is either consumed or sold by the location owner. This SuiteApp ensures that is accurately reflected on your balance sheet.
- Accurate profit and loss – use the powerful features within NetSuite to get full classification of sales and stock, profitability and turnover from native NetSuite reports.
- Easily and efficiently replenish consignment stock locations – each location can have a separate profile depending on specific customer requirements and at each stock-count, replenishment and billing is automatically triggered for approval.
- Increased sales through vendor managed inventory – work with your customers to create a profile against their requirements and a complete view of the products you sell at each location. This is then monitored by your staff, the results of which trigger replenishment and billing within the NetSuite system.
Since we are using a huge amount of native NetSuite functionality, you can also benefit from the seasonal demand function within ‘Advanced Inventory’ or the more advanced supply chain abilities within the ‘Demand Planning’ module.
And because NetSuite is cloud based, you have the ability to track inventory anywhere anytime, so that rather than having to wait until you get back to your computer to check stock levels, you can do it from anywhere provided you have an internet-enabled device. Naturally, this also allows you to see up to the minute order and stock levels and act accordingly.
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We recently wrote a couple of related articles explaining how NetSuite can help wholesale distributors cope with some of the other challenges they are facing today:
‘How can NetSuite help wholesale distributors solve their problems?‘ – which covers:
- The changing expectations of business buyers
- More businesses choosing to do their ordering online
- Streamlining the returns process
- Managing stock levels
- Managing drop shipping vendors
- Calculating accurate landed costs
Take a look, we hope you find them useful.