What is a consignment warehouse?
By definition, a consignment warehouse is a warehouse belonging to a supplier or vendor (referred to as the consignor) that is located in the immediate vicinity of or on the premises of the buyer (customer; referred to as the consignee). The consignment warehouse ensures the secure and smooth supply of goods to the buyer, who regularly notifies the supplier of any withdrawals.
The quantity removed from the warehouse triggers a notification to the supplier at the same time. The customer determines when items are removed from the consignment warehouse. The supplier retains ownership of the goods until they are removed.
Benefits of a consignment warehouse for the customer
Every business owner must find ways to increase customer satisfaction and sales while reducing costs and minimizing tied-up capital. A consignment warehouse can be a key component of a successful business.
The customer does not have to worry about delivery or inventory. Parts are always on hand and readily available to the customer. This increases customer satisfaction. The buyer also saves on investment costs, avoids the investment risk associated with maintaining its own inventory or parts warehouse, and reduces its capital tied up in inventory and storage costs.
Advantages and disadvantages of a consignment warehouse for the supplier
The main advantage of a consignment warehouse for the supplier is stronger customer loyalty and the ability to plan sales to a greater extent. A potential disadvantage is the higher amount of capital tied up that results from maintaining one or more consignment warehouses.
Special Features
If the registered offices of the supplier and the consignor are located in different countries within the EU, different tax regulations (e.g., value-added tax) may need to be observed. Both companies require an identification number for the intra-Community movement of goods.
Special Type: Supplier Logistics Center (SLC)
Major customers who require a large number of individual parts—which in turn must be supplied by various consignment partners—often set up a logistics center within their intralogistics operations. Consider, for example, an automaker that houses separate areas for each consignment in a single warehouse. Each consignment is responsible for inventory management and quality control of its respective storage area and its parts. This allows the manufacturer to focus solely on vehicle production.
Conclusion
Provided the conditions are met, a consignment warehouse offers suppliers the opportunity to strengthen customer loyalty. Customers, on the other hand, benefit from low capital tied up in inventory, thereby reducing their storage costs. A coordinated IT infrastructure is necessary to achieve the optimal cost-benefit balance in a consignment business. This allows suppliers and buyers to view important data at any time, manage key processes, and automatically process notifications of withdrawals.