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Consignment Scenario 7 - Consign for Finishing/Value-Add, Version 1.0 Seller Consigns to Buyer, 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 has inventory that needs a finishing or value add service.
1.

The buyer generates an sends a subcontract purchase order per Order Model 5.  The Contract Manufacturer or Subcontractor sends a response.

2.

Logistics Scenario - If the order is accepted, the buyer transfers (ships) goods to consignment location (the Contract Manufacturer or Subcontractor).   No ship notice is needed, since all the relevant information is contained in the purchase order.  No transfer of ownership takes place.  Frequently, the subcontractor is a local source with it's own vendor truck, and the purchase order triggers the subcontractor to pick materials up at the buyer's location.

3.

The buyer posts the consigned inventory to a subcontracting account, so that the inventory remains on the buyer's books, but is identified as being physically in the possession of the Contract Manufacturer or Subcontractor.

B. At end state B, the consigned inventory is in possession of the Contract Manufacturer or Subcontractor and the buyer waits for the finished items to be shipped.
4. The Contract Manufacturer or Subcontractor completes order (provides value-add or finishes goods).
5. The Contract Manufacturer or Subcontractor ships completed parts to the buyer, and includes information in the Ship Notice about any excess materials that are being returned.
C. At End State C, the Contract Manufacturer or Subcontractor knows that the buyer has received the shipped items.
D. At End State D, no excess materials have been returned.
7. If excess materials have been returned, the buyer transfers them back into inventory.  The materials may have to go through a quality inspection before being made available again.
E. At End State E, excess materials have been transferred back into the inventory system.
F. At Start State F, the Contract Manufacturer or Subcontractor has inventory adjustments to report.
8. (Optional) At any point in the process, the Contract Manufacturer or Subcontractor may report inventory adjustments to the buyer.  In particular, if inventory has been damaged or scrapped during the finishing/value-add process, the buyer is notified.  The buyer will evaluate to determine if this was "normal" yield loss that is a by product of the manufacturing process, or if the loss was not consistent with expected yield loss.
G. At End State G, there are no billable shrinkages reported, so the buyer is not triggered to request a debit from the Contract Manufacturer or Subcontractor for lost inventory.  There may have been shrinkages that were determined to be due to normal yield loss.  The buyer and distributor are in synch about the inventory levels on Consignment.
H. At Start State H, the Contract Manufacturer or Subcontractor is ready to do inventory reporting.
9. (Optional) At any point in the process, the Contract Manufacturer or Subcontractor performs inventory counts and reports to the buyer (scheduled, as-needed, or at the buyer request). Typically, inventory reporting is done at least during every fiscal month-end. The Contract Manufacturer or Subcontractor provides detail of inventory adjustments, scrap, setup, etc. the buyer may debit for inventory shrinkage.
J. At End State J, there are no billable shrinkages reported, so the buyer is not triggered to request a debit from the Contract Manufacturer or Subcontractor for lost inventory.  There may have been shrinkages that were determined to be due to normal yield loss.  The buyer and distributor are in synch about the inventory levels on Consignment.
10. The Trading Partner Agreement should define how inventory shrinkage is handled and how the buyer determines the parameters of normal yield.  For shrinkage not attributable to the manufacturing process, they buyer may ask the Contract Manufacturer or Subcontractor for a debit to be taken from what it owes for services per Debits and Credits Model 5.
K. At End State K, the buyer has requested a debit from the Contract Manufacturer or Subcontractor, and there has been a response to the request.

Last updated 01 February 2003