Holding stock for a Customer is nowadays quite common and is often referred to as consignment stock. When considering the topic of consignment stock or inventory that has been allocated or reserved to a Customer, the key parameters to establish are:
- Where is the stock?
- Is it in your warehouse or
- Is it in your customer’s warehouse?
- What logistics are in place to manage the stock?
In our experience there are two typical scenarios. The aim of this blog is to highlight the key parameters and ideas of how to implement it using standard ‘out of the box’ functionality. It is important to recognise that not every consignment or reserve stock implementation will fall exactly into these examples, but I hope it will give you the building blocks to deliver a successful solution.
Other considerations that need to be addressed:
- It’s important to know where the stock is, as at some point an actual physical stock count may be required.
- How to get the stock there
- Sales Shipment?
- Transfer Order?
- Item Reclassification Journal?
- How to get the stock there
- It’s important to know who owns the stock as that will be reflected in the Cost in your accounts
An Inventory Valuation report is used to establish stock values. This report needs to be considered as part of the above. It is also useful to potentially identify the value of customer consignment stock in the Chart of Accounts. Managing the consignment effectively can deliver big rewards to the business. Here are a few scenarios and ideas that you may find useful.
Consider the scenario where we have agreed with the customer to hold 100 Widgets in our warehouse. These all have a standard cost of £10. These widgets are still your stock but have effectively been reserved/allocated to the customer. Below is a (very rough) diagram to help visualise the situation.
Replicating this in Business Central
In this example we will work with a customer ‘Rugby Industries’ (C0020). Firstly, we need to create a location that can be easily associated with the relevant customer. It may be the Location equals the Customer No. In some instances, it may be the only customer that uses consignment stock and so being that specific isn’t overly important. It’s dependent on the user’s preferences. For this example, the Location Code on the Customer Card is set to C0020. If we then go to the ‘Locations’ page, the location C0020 has an address field with ‘Consignment stock for Call Off’ entered. This location doesn’t have bins, which helps to keep the process simple. However, if there are many different items to be held in the consignment stock location, then you can invoke the bin functionality.
Having created a new Location, we now need to update the Inventory Posting Setup for the new C0020 location.
In this instance, we have set up a G/L account 40720 ‘Consignment Stock for C0020’ which will separate out these costs in the Chart of Accounts. However, I could have used the existing Inventory G/L account 40700.
If you had several customers with consignment stock, then you could group them all into 40750 ‘Consignment Stock’ or split them out into individual accounts as we have here.
As the cost of the stock in this location is still ours, we can use the Item Reclassification Journal or Transfer Order to move the stock from our main warehouse into the C0020 location. For this example, we will use the Item Reclassification Journal as it is a simple process, reflecting the fact that the customer consignment location is probably a cordoned off area of our main warehouse.
Selling consignment stock
When the customer asks to call off 25 Widgets, we can raise a Sales Order or Sales Invoice where the sales location is C0020. When the sales order or invoice is posted it will remove stock from the customer’s consignment stock area (C0020).
The Chart of Accounts will now detail the reduction of 25 Widgets. We started at 100 Widgets and sold 25, leaving us with 75 at £10 each, amounting to £750.
Finally, it’s also worth noting that if your agreement with your customer is to maintain a quantity of 100 Widgets at your consignment location, then you can set up a Stock Keeping Unit (SKU) and include this in the MRP calculation.
In this scenario, the consignment stock is physically at the Customer’s site but is still owned by you. For this scenario we will use customer C0030. Below is another diagram to illustrate how this differs from the first scenario.
To achieve this, we initially create a Location ‘C0030’ for the customer ‘Birmingham Industries’ (C0030), then update the Inventory Posting Setup as per above.
In this scenario the key aspect is that the Customers Consignment location is probably many miles away and requires shipping via a haulier. For this reason, we will use the Transfer Order as it has the Ship & Receipt function and associated paperwork to support the haulier shipping process.
The Chart of Accounts General Ledger account 40730 will now reflect this stock movement. 100 Widgets at £10 comes to £1000.
You can then raise a sales order or sales invoice with a location of C0030, which will consume the stock and raise the associated sales invoice.
If we review our G/L Account 40730, we can see what’s changed. It was originally £1000. However, we have to deduct £300, due to there being 30 Widgets at £10 being sold. This leaves a remaining value of £700.
Additionally, if your agreement with your customer is to maintain a quantity of 100 Widgets at the consignment location, then a Stock Keeping Unit (SKU) can be set up and included in the MRP calculation.
I hope you found this blog useful. As part of the customer consignment stock implementation please remember to address the following in the testing phase:
- Sales returns
- Stock adjustments due to damaged goods. This topic could be quite intriguing when it comes to who pays for it and more interesting if the item damaged was manufactured by yourselves.
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