Consignment inventory
Consignment inventory is parts physically held at your site (or a third-party warehouse) but legally owned by the supplier until you consume them. You can use the parts the moment they arrive; you do not pay until you draw them out of the bin and report the consumption.
Part of the Procurement Glossary
How it works in practice
A supplier delivers a quantity of parts under a consignment agreement: say, 1,000 units stocked in a designated bin on your floor. The parts sit there available to production, but they remain on the supplier's books. When the floor pulls 50 for a build, you log the draw, the supplier issues an invoice for those 50, and the supplier replenishes the bin against the agreed minimum.
For the buyer, the day-to-day is different from a normal PO workflow. There is often no traditional PO for each shipment. The agreement itself is the commercial frame; the daily transactions are draws and replenishments rather than place-and-receive cycles. Some shops issue a blanket PO that covers the consignment program; others run it entirely off the agreement.
The piece that most often breaks is consumption reporting. If the floor pulls parts and the draw is not logged, the supplier does not invoice, the on-hand record drifts, and the end-of-month reconciliation turns into an inventory hunt. The buyer is usually the one who owns making sure the draw logging stays current.
Why it matters
Consignment changes the cash-flow profile of a part. Inventory you would normally pay for on receipt now sits on your floor at no cost until you use it, which frees working capital and reduces the cost of carrying high-MOQ items. For parts with steady consumption, the savings can be material across a portfolio.
The trade is operational complexity. Consumption reporting, periodic reconciliation, and the legal split between physical possession and ownership are all new things to manage. When a consignment program drifts (unreported draws, missed reconciliation, supplier disputes about the on-hand count) the cost of cleaning it up usually outweighs the working-capital savings.
Tips
Log every draw the day it happens
Consumption reporting is the linchpin. A bin that gets pulled from but not logged becomes an invoice dispute three weeks later. Same-day logging keeps the on-hand record honest.
Reconcile on a fixed cadence
Pick a cadence (weekly, monthly) and physically count the bin against the on-hand record on that day. Catching a 50-unit drift after a week is a conversation; catching it after six months is a reconciliation project.
Document the trigger for replenishment
Be explicit with the supplier on what level triggers a refill, what the lead time on the refill is, and who is responsible for monitoring the on-hand. Vague replenishment terms are how a consignment bin runs empty.
How PO-Relay helps
For the parts of a consignment program that flow through your normal PO workflow (a blanket PO covering the consignment terms, scheduled replenishment releases that are placed and received like any other shipment) PO-Relay tracks each release the same way it tracks any other open PO. Open Loop Tracking watches the release through to receipt; the Parts Dashboard surfaces it alongside the rest of your open work.
For the pure-consignment piece (draws, on-hand reconciliation, consumption reporting back to the supplier) PO-Relay is not the system of record. Those flows live in your ERP's inventory module or in the consignment-management tooling your supplier provides. PO-Relay's contribution is on the PO side; the consumption side stays where it already lives.