Purchasing & suppliers
Consignment Inventory
By the Supply Chain Manager team · Updated October 16, 2026
Consignment inventory is stock held at the buyer's location but still owned by the supplier until it is used or sold, when the buyer is invoiced.
The buyer gets availability without tying up cash; the supplier gets shelf presence and secure demand. The details live in the contract: who insures the stock, how often usage is reported, and what happens to items that do not sell.
Consignment arrangements need regular reconciliation: what the supplier believes is at your site, what your system shows and what is physically there. Without it, disputes build up over shrinkage and slow items. A monthly usage report and an annual joint count are common ways to keep both sides aligned.
Consignment inventory example
Illustrative: a manufacturer places $50,000 of specialist valves in a distributor's warehouse on consignment. The distributor pays only when a valve ships to a customer and reports usage monthly.
Why consignment inventory matters for distributors
Consignment can be a good way to stock expensive, slow-moving lines a distributor could not otherwise justify. It needs separate tracking so consigned stock is not counted as your own inventory value.
Common consignment inventory mistakes
- Mixing consigned and owned stock in the same inventory records.
- Not agreeing return terms for consigned items that do not sell.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.