What about consignment inventory?

Multiple companies have to ensure critical inventory in their facilities to reduce time and transportation costs, mostly because their manufacturing operations are too costly to stop them by inventory breakdowns.

To do that, companies store an inventory owned by vendors in their warehouses, and when they are ready to consume it, they take ownership of that inventory. This is called consignment inventory.

Consignment inventory process

The consignment process starts when a company brings a vendor’s inventory into its warehouse. The company cannot create a PO because the inventory’s owner is the vendor until this item is sold or consumed. If a PO is used, the company assumes the inventory value, which is unrealistic and will have financial differences.

The company must follow this process to perform a consignment in Supply Chain Management:

Figure 4.58 – Consignment process

In Figure 4.58...