Consignment (Bailment) - Explained
What is Consignment?
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Table of ContentsConsignment DefinitionA Little More on What is ConsignmentPayment consignmentAcademic Research
What is Consignment?
To consign means to allocate some money to the payment of expenses or debts. It also refers to contracts whose goods are paid for after the sale. Consignment may also mean placing money on the hands of a third party who will pay debts, set a budget or register an opinion in legal regulations. This word is synonymous with deposit, assets, remittance or delivery.
How Does Consignment Work?
The Consignment contract is an agreement in which two parties, the consignor and consignee, get into the faculty of sale without the consignor losing ownership of merchandise. In the field of accounting, this activity is referred to as consignment in accounting. The consignee has the obligation to sell the merchandise they receive from the consignor after they have agreed on the percentage each party will receive for the sale. If the consignee cannot sell the merchandise, it is returned to the consignor. Each party gains some advantage from the Consignment. The consignor does not need to invest in storage merchandise and the consignee benefits when the consignment sells fast to avoid stagnating capital.
Consignment of Payment occurs when the consignor declines receiving money from the consignee for some reasons. If the consignee tries to pay directly to the consignor in vain, payment has to be made in a court. This is known as a judicial Consignment.
- Channel performance under consignment contract with revenue sharing, Wang, Y., Jiang, L., & Shen, Z. J. (2004). Management science, 50(1), 34-47. This paper reviews the terms and the performance of consignment contracts. It analyses the duties and obligations of both the consignor and the consignee and how individual firms depend on Consignment. It looks at how Consignment contracts are related to price elasticity and the profits and losses that firms make.
- Stochastic inventory systems in a supply chain with asymmetric information: Cycle stocks, safety stocks, and consignment stock, Corbett, C. J. (2001). Operations research, 49(4), 487-500. This paper examines how information asymmetries and incentive conflicts affect inventory management. It shows that when the decisions rights are transferred to both buyer and seller, there are always inefficient outcomes. The paper concludes that supply-chain incentives can be used to overcome information asymmetries.
- The consignment stock of inventories: industrial case and performance analysis, Valentini, G., & Zavanella, L. (2003). International Journal of Production Economics, 81, 215-224. This paper observes that Consignment stock is a good idea in inventory management. This paper examines 'Consignment stock' and how it helps firms manage inventory better. The paper samples a company manufacturing automotive parts.
- A one-vendor multi-buyer integrated production-inventory model: The 'Consignment Stock'case, Zavanella, L., & Zanoni, S. (2009). International Journal of Production Economics, 118(1), 225-232. This paper starts by observing that most companies have strengthened their supply agreement. Most companies use vendor-managed inventory, also referred to as Consignment stock, to manage their inventory. This paper looks at how firms can use Consignment stock to develop successful strategies for buyers and suppliers.
- Supply chain coordination and decision making under consignment contract with revenue sharing, Li, S., Zhu, Z., & Huang, L. (2009). International Journal of Production Economics, 120(1), 88-99. This paper observes that Consignment contracts have become popular. It studies supply chain between an upstream manufacturer and a downstream retailer involved with a single-period product. It shows that while the manufacturer chooses the product quality, quantity and price, the retailer sets revenue shares.
- Modelling an industrial strategy for inventory management in supply chains: The'Consignment Stock'case, Braglia, M., & Zavanella, L. (2003). International Journal of Production Research, 41(16), 3793-3808. This paper studies inventory management in relation to Consignment stock. The paper suggests a method that allows firms to identify production situations in which CS can be implemented successfully.
- A note on channel performance under consignment contract with revenue sharing, Li, S., & Hua, Z. (2008). European journal of Operational research, 184(2), 793-796. This paper observes that, from a look at studies in Consignment, decentralized supply chains cannot be efficiently coordinated. This paper provides a model that enhances the process of sharing profit between the manufacturer and the retailer. The cooperative game model offered on this paper, a revenue sharing agreement that comes with an equilibrium payment scheme makes it possible to coordinate a decentralized supply chain.
- Impact of consignment inventory and vendor-managed inventory for a two-party supply chain, Gm, M., Jewkes, E. M., & Bookbinder, J. H. (2008). International Journal of Production Economics, 113(2), 502-517. This paper examines Consignment inventory and vendor-managed inventory and how they impact Consignment contracts. It shows that the vendor benefits in making decisions that suit their preferences. CI favors customers as they only pay for goods after use. The paper goes on to show benefits of VMI and CI to suppliers, customers aand vendors.
- Consignment contracting: who should control inventory in the supply chain?, Ru, J., & Wang, Y. (2010). European Journal of Operational Research, 201(3), 760-769. This paper starts by defining Consignment as a business agreement in which a supplier retains ownership of inventory and is paid when a retailer sells a unit of merchandise. The paper then examines who has the right to control supply chain inventory. It analyzes the roles of the retailer and the supplies and the efficiency of a Consignment contract. The paper concludes that; it is beneficial for both parties if the supplier controlled the supply chain inventory.
- Making consignment-and vendor-managed inventory work for you., Williams, M. K. (2000). Hospital materiel management quarterly, 21(4), 59-63. This paper analyzes the benefits of vendor-managed inventory for both the vendor and the supplier. It shows that there are costs and risks involved in this approach but by understanding the risks and costs and managing them efficiently, both parties stand to gain a lot.
- Channel coordination under consignment and vendor-managed inventory in a distribution system, Chen, J. M., Lin, I. C., & Cheng, H. L. (2010). Transportation Research Part E: Logistics and Transportation Review, 46(6), 831-843. This paper examines the problems associated with vendor-managed systems. It starts by analyzing profit maximization problem by carrying out an equilibrium analysis under non-cooperative and cooperative systems. The results of this study indicate that, non-cooperative decentralization price high and strock less and this can lead to lower channel-wide profit.
- Vendor managed inventory (VMI) with consignment considering learning and forgetting effects, Zanoni, S., Jaber, M. Y., & Zavanella, L. E. (2012). International Journal of Production Economics, 140(2), 721-730. This paper analyzes VMI with Consignment inventory and learning curve and how they interact. Under VMI, the retailer manages inventory until the buyer withdraws. This gives the vendor the possibility of revising their strategies and exploiting opportunities presented by learning in production. The paper suggests different policies that the vendor can adopt to garner all advantages that come with VMI.