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Consignment Scenario 3 - Consignment, Forecast-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 generates Consumption Plan per the Forecast Model 3 component of Replenishment Scenario 4, including planned consumption (sales and/or usage, a/k/a gross requirements), available inventory levels, inventory receipts, and minimum and maximum inventory level targets. The buyer sends the Consumption Schedule to seller.  The supplier nets forecast data to determine if changes from a previous plan are within acceptable tolerance for change, to determine whether replenishment is required during the current planning cycle, and to generate a Replenishment Schedule for future replenishment.  The Consumption Plan may include report on inventory consumption or resale activities that have occurred since the previous schedule was sent.
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, the supplier has generated a Replenishment Schedule and is ready to share it with the buyer.
2d. The the buyer requires it, the supplier sends its Replenishment Plan to the buyer, who uses it to monitor the schedule and ensure it will keep inventory within target minimum and maximum inventory levels.

Since the buyer is not scheduling deliveries, another way the buyer uses Replenishment Schedule generated by the supplier is to plan the Receiving Department's workload.

F. At end state F, the Replenishment Schedule has been processed.
G. Start state G occurs if the supplier requires inventory usage to be reported separately from or more frequently than a consumption schedule or a standard inventory report.
2e. In this consignment scenario, reporting the transfer-of-ownership triggers billing and may trigger replenishment.

Since the consignee is already sending a supplier-managed inventory forecast (Consumption Schedule) (Forecast Model 3 component of Replenishment Scenario 4), the consumption data may be included along with the other inventory data, and can be used to trigger billing.

  • If the Consumption Schedule is sent less frequently than consumption events, and the supplier wants real-time reporting of consumption events in order to trigger billing and start the clock for payment terms, instead of incurring more overhead by adding another set of document exchanges to the process, consider instead streamlining the process by using a pay-on-consumption financial model (consignee sends automatic payment when usage occurs).
  • Real-time reporting of consumption events does make sense if the consumption is being reported more frequently than the Consumption Schedule so that the supplier may monitor inventory levels, and replenish as needed, but the replenishment quantity is based on the data in the Consumption Schedule.

If the Consumption Schedule is not used to report usage and trigger billing, the following options are described in more detail in the supporting documentation:

H. At Start State H, (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 - Step 5 below - is not required.
I. At Start State I, 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.
J. At End State J, 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.
K. At End State K, the ownership of the inventory has been transferred, and payment has been made.


Last updated 04 January 2003