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Consignment Scenario 2 - Consignment, Consumption-based Supplier-Managed Inventory, Version 1.0
Status:  Version 1.0 - Status:  Provisional Ratification by Committee August 2002. Created as part of recast of original Inventory Models, Pre-2000 Version A (Balloted and Ratified by Membership, August 1998)

Process Activities

Special Notes:                   

 


Activity Diagram (See also Narrative):

 


Narrative (see also Graphic):

Step Description
A. At start state A, the buyer and seller are ready to negotiate terms for consigned inventory.
1. Order Model 2:  Buyer issues a Blanket Request for Quote and the seller sends a Quote.  This step also includes the establishment of a Terms and Conditions Agreement.  See Pre-Order Model 2 for details.
B. At End State B, the buyer and seller have not agreed on terms.  The process may simply end, or another iteration of the Pre-Order process may begin.
2a. If the seller's quote is acceptable and agreed upon Terms and Conditions exist, the buyer issues Blanket Purchase Orders for parts that are part of the consignment program.  The seller sends back responses to the Blanket Purchase Orders.
C. At Start State C, the buyer is ready to execute an iteration of the material planning process.
2b.

The buyer reports the transfer-of-ownership event (consumption or resale).  There is more than one choice here because reporting an event that triggers transfer-of-ownership in a consignment process very often means using business message that is already being exchanged, and may or may not require the addition of a data element or two.

In this Consignment Scenario, reporting of consumption or sales may trigger replenishment and is therefore shown as occurring before any shipment process.  This is because the consumption or sales data event is needed in order to determine whether or not replenishment is required.  It is assumed that there is an initial stocking of the consignment warehouse before the cycle of events described in this Consignment Scenario begin.

The following options are described in more detail in the supporting documentation:

D. At end state D, no replenishment is required for this planning cycle.
2c. When inventory needs replenishment, releases are issued against the Blanket Order.  Releases are supplier-managed, per Replenishment Scenario 4 and when replenishment is needed, the seller transfers (ships) goods to consignment warehouse (buyer’s or third party’s facility).

After replenishment, the consigned inventory is physically in the possession of the buyer or the buyer's agent, but is owned by the seller and remains on the seller's books.  Buyer and seller now wait until the activity that triggers transfer of ownership occurs.

E. At Start State E, (Optional) The buyer and seller have agreed that the buyer will report the status of the consigned inventory to the  seller (scheduled, as-needed, or at seller request).
3. Inventory Model 1 - The buyer performs inventory counts and reports to seller. The seller may invoice for inventory shrinkage.  The buyer may also use the Inventory Report to report billable consumption of inventory.  In that case, Inventory Model 4 is not required.
F. At Start State E, the buyer or buyer's agent has done an inventory count and needs to report one or more adjustments.
4. Buyer reports inventory adjustments to seller.  Resolving discrepancies is usually handled manually.
G. At End State G, there are no billable shrinkages reported, so seller is not triggered to invoice the buyer for lost inventory.
5. Ownership transfers from seller to buyer per contractual terms.  The seller invoices buyer or payment is triggered per appropriate Financial Model.  For this consignment scenario, a pay-on-consumption financial model is recommended.
H. At End State H, the ownership of the inventory has been transferred, and payment has been made.

 

Last updated 24 February 2003