Consignment warehouses are unpopular with suppliers. However, they overlook a significant cost factor.
A consignment warehouse is a warehouse that is typically located near a customer or on the customer’s premises. The decisive factor here is that the goods remain the property of the supplier until they are removed. Sometimes the customer even pays for the goods once the finished product into which the goods are incorporated has been completed.
Consignment warehouse concepts are usually sought by customers in order to reduce capital commitment. The customer also has the advantage of higher material availability due to the proximity to the warehouse.
Suppliers are usually critical of consignment warehouses. Although the advantage of closer customer loyalty is recognized, the focus is on the capital tied up.
Our tip: In most cases, the capital costs only account for a third of the storage costs, in exceptional cases half. Suppliers who only store consignment goods at the customer’s premises tend to save costs, as the obsolescence risk, storage costs, depreciation, etc. are borne by the customer. Only the capital costs remain with the supplier. As the consignment goods remain the property of the supplier, they are not subject to the risk of customer insolvency, provided that the storage areas are clearly separated. Ultimately, the supposedly higher capital commitment on the supplier side can still be compensated for by shorter payment terms on the part of the customer. So there is also a lot to be said for consignment warehouses from the supplier’s point of view.
