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Consignment Scenario 4 - Consignment, Third-Party Warehouse,
Buyer-Contracted, Version 2.0

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 buyer has inventory deposited in a Third-Party warehouse contracted by the buyer (buyer is depositor).  Inventory owned by the buyer remains on the buyer's books and warehouse does not take ownership at any time.  The buyer may also deposit inventory consigned to it by a seller.  To the seller, the Third-Party Warehouse is just another location of the buyer’s; legal terms for liability established between buyer and warehouse, and between buyer and seller for inventory consigned to the buyer by the seller.  Replenishment takes place per appropriate two-party Replenishment Scenario; parts are received into warehouse. When inventory is needed, the buyer sends pull signal to warehouse, and warehouse shipment advice and transfer receipt advice used by both parties to trigger the increment or deduction of on-hand inventories.    For inventory consigned to the buyer by its seller, It is critical for buyer to have accurate visibility of the inventory levels and status at warehouse to report to seller.   The warehouse performs inventory counts and sends inventory reports and adjustment notices used to keep inventory levels and status in synch with the buyer.

See also Assumptions in the supporting documentation.

Overview (Use Case) Diagram    Narration

Narration   Overview (Use Case) Diagram




Replenishment Scenario - The buyer may or may not have products on a consignment program between the buyer and seller. 

  • For parts that will not be on a consignment program with the seller, the buyer and establish the appropriate two-party replenishment process.
  • Consignment Scenario - If there is a consignment program between buyer and seller, the buyer establishes the appropriate two-party consignment process with the seller, including appropriate replenishment (Order and Forecast) models, and reporting of inventory balances.
2. Logistics Scenario - The seller drop-ships inventory to the buyer's warehouse.
3. Inventory Management Model 8 - The buyer notifies the warehouse when inventory is being drop-shipped from its (the buyer's) supplier to the warehouse.  The buyer also notifies the warehouse when inventory is being transferred from an in-house stores.

The warehouse notifies the buyer when the transferred or shipped goods have been received.

4. Logistics Scenario - For goods drop-shipped to the buyer's warehouse, the Buyer sends Receipt Advice to the supplier.


Financial Scenario - Seller invoices buyer or payment is triggered per appropriate Billing or Payment model.

6. Inventory Management Model 1 - (Optional) Inventory is physically located at the warehouse facility.  The warehouse performs inventory counts and reports to seller (scheduled, as-needed, or at seller request). Buyer may invoice for inventory shrinkage depending on the terms of the consignment agreement.
7. Debits and Credits Model 5 - If inventory shrinkage is reported, the buyer may request a debit from the next payment to the warehouse.
8. Financial Scenario - The warehouse invoices the buyer for services or payment for services is triggered per appropriate Billing or Payment model. 


Inventory Management Model 9 - Buyer sends Warehouse Shipping Order to Warehouse when parts need to be shipped to the Buyer's facility.

Warehouse sends Stock Transfer Ship Advice to let buyer know parts have been shipped.

When inventory arrives, Buyer sends Warehouse Stock Transfer Receipt Advice to Warehouse.


Inventory Management Model 10 - The Warehouse sends Inventory Adjustment Advice to the buyer to report any adjustments due to inventory counts.  If there is inventory shrinkage, the buyer may request a debit from money owed the warehouse for services,  depending on the terms of the consignment agreement.


Inventory Management Model 10 - The buyer may send Inventory Adjustment Advice to the warehouse to report a variance noted, to ask the warehouse to put inventory on hold or reserve it for a specific purpose, request disposal of inventory, notify of a product recall, etc.

Last updated 01 February 2003