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Consignment Scenario 1 - Base Model:  Consigned Inventory for Consumption or Resale, 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)

Business Overview

Special Notes:

The purpose of this documentation is to describe the activities in the Consigned Inventory for Consumption or Retail business process, including the flow of documents and high level data requirements.

Any implementation method should be agreed upon by trading partners. It is the intent of this documentation to make interpretation of the models used for Consignment more consistent, so that implementations are based upon common practices.

This scenario describes a buyer-Managed Inventory process.  The buyer is in possession of inventory owned by the seller.  The Buyer reports consumption of inventory (usage) or sales or other transfer-of-ownership event to seller, which triggers transfer-of-ownership and billing/payment cycle; the buyer issues a release or order to trigger replenishment.

See also Consignment Base Model and Variations and Assumptions in the Supporting Documentation.

Overview (Use Case) Diagram    Narration

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Narration   Overview (Use Case) Diagram

Step Description
1. Pre-Order Model 2:  The buyer and seller negotiate the terms for the consignment process and the related Blanket Purchase Orders.  The pre-order process includes the establishment of pricing and a Terms and Conditions Agreement.
2. Buyer issues release or order to seller per appropriate Blanket-Order based, non-SMI Replenishment Scenario.
3. Seller transfers (ships) goods to consignment warehouse per appropriate Shipment Model.  If a third-party warehouse is used, see Consignment Scenario 4 - Third-party Warehouse, Buyer-Contracted or Consignment Scenario 5 - Third-party Warehouse, Seller-Contracted.
4. Inventory Management Model 1:  (Optional) Inventory is physically located at buyer’s facility.  Buyer performs inventory counts and reports to seller (scheduled, as-needed, or at seller request).  Seller may invoice for inventory shrinkage.

The buyer may also use the Inventory Report to report billable consumption of inventory.  In that case, Step 5 below may not be required, but at least one of Step 4 or Step 5 is required.

5. The buyer reports the transfer-of-ownership event.  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 the transfer-of-ownership triggers billing but not trigger replenishment (see Step 2).

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

Another model is the use of the Bill-Only PO.  This model is not recommended, but is documented here because it is in use.
  • Order Model 4:  Buyer sends a bill-only "purchase order" to reports usage to trigger transfer of ownership and Billing/Payment cycle.  This is really a release against the Blanket PO, because the invoice must be matched to the original Blanket PO.  Usage is in-house consumption. The Bill-Only PO does not trigger replenishment by definition.  Instead, replenishment is per the next release or order - Step 2 above.
    • Note:  It has been suggested that this process could be streamlined by pre-assigning invoice numbers at shipment. However, this is problematic because the number of consumption instances may not match the number of shipment instances.
6. Financial Scenario Ownership transfers from seller to buyer per contractual terms.  Seller invoices buyer or payment is triggered per appropriate Financial Model.  Seller may also bill for inventory shrinkage per contractual terms.
7. (Optional - not shown here) The buyer reports may report inventory adjustments, if applicable.  See Inventory Management Model 10 or adjustments may be included in Inventory Reporting per Inventory Management Model 1 (Step 4).


Last updated 24 February 2003