On-site Consignment Inventory
On-site consignment inventory sits in your production line or on the shelf at the office. You don't pay for the stock until you use it to build your products or take it from the office storeroom. It lowers your cash investment in inventory because you don't pay for it until you use it.
To implement on-site consignment inventory, you will need a reliable supplier that:
Getting started with this is as easy as calling my friend Rob and saying, "Hi, Rob! Would you have one of your sales guys stop in and set up an on-site consignment inventory for one of my clients?"
Can On-site Consignment Inventory help you?
If you answer "yes" to any of these questions, then keep reading because just-in-time replenishment could help you manage your cash:
A Client's Big Win Using On-site Consignment Inventory
Anytime you need to buy a large quantity of anything, there is a natural tendency to assume that purchasing large amounts will cost less and be the best decision for the company. That's usually not the case!
Don't believe me? Here is a fascinating but true example:
I was working with one of my great clients, a specialty plastics manufacturer that produces finished goods from raw materials. One of the first days I was there, the factory manager said, "I'll be right back. I've got to pick up some hardware down the street."
I didn't think anything of it the first time. Or the second time. But by the third time it happened within a week, I said," What's the deal? Why do we keep running out of nuts and bolts?"
He explained that they were buying barrels of nuts and bolts because the piece price was lower, but the new shipment hadn't come in yet. The company had issues because they would buy months and months of supply but didn't pay the bill on time!
So here we were with tens of thousands of dollars of nuts and bolts sitting in barrels and waiting while other barrels sat empty because of a supply glitch due to lack of cash. The result: We had too much of some hardware and were out of stock on others so we couldn't make kits and ship products!
Not having money to buy hardware was a cash management issue just begging to be fixed! So, we went to work.
It just so happens that a good friend of mine is the president of a fastener distributor. (I learned that "fastener" is the official name for nuts and bolts.) It turns out that this specialty distributor had a better price, even at low quantities, than the general supplier.
Even better, they set up an inventory system that was a dream:
Here are the results of this project:
The key hidden benefit was that the manufacturing manager stopped wasting time ordering or managing inventory.
Make it Happen.
Here are four easy steps to implement on-site consignment inventory:
Bonus Benefits: Hidden Benefits and Opportunity-Cost Savings
Can you think of other areas of the business to use on-site consignment?
Do you consider contractors to be a type of "consignment?" Do you only pay for the amount you use?
Other than inventory, are there other parts of the business where paying for only what you use when you use it could be implemented?
I'd love to hear any ideas you have.
Is there a cash management topic you'd like to learn about? Contact me at [email protected] or LinkedIn at linkedin.com/in/dsafeer/ to introduce yourself, share ideas, or ask me questions about managing your business's cash.
David Safeer is a globally recognized expert in cash flow optimization, and the founder of Cash is Clear Learning Systems, which educates and advises accountants and fractional CFOs on cash flow and profit maximization strategies for their clients. His work has impacted hundreds of businesses with revenues from $1 million - $20 million in 40 countries.