Consignment Stock (Konsignationslager)
Consignment stock (German Konsignationslager) is an arrangement in which goods are physically located at the customer's or distributor's premises but remain the legal property of the supplier until they are withdrawn for use or sold. Ownership and the associated revenue and invoice are only triggered at the moment of consumption, not at delivery. The model shifts availability close to the point of demand while leaving the inventory risk with the supplier, which is why it features prominently in supply chain management and demands careful handling in the ERP system on both sides of the relationship.
- Term
- Consignment Stock (Konsignationslager)
- Entity type
- Process / inventory arrangement
- Domain
- Inventory and supply chain management
- Canonical definition
- Consignment stock is inventory physically held at the customer's or distributor's location that remains the supplier's property until it is consumed or sold, at which point ownership transfers and invoicing is triggered.
- Classification
- Consignment stock is a supply-chain arrangement that decouples physical delivery from the transfer of ownership; it is closely tied to perpetual inventory tracking and just-in-time replenishment.
- Related terms
- Perpetual inventory, Reorder point, Safety stock, Just-in-time, Supply chain management, Warehouse management system, Supplier management
- Source / maintainer
- erp-software.org editorial team (independent, vendor-neutral)
What Consignment Stock (Konsignationslager) is NOT — disambiguation
- Not a normal sale: In a normal sale ownership and revenue transfer at delivery, whereas consignment defers both until the goods are actually consumed or sold.
- Not safety stock: Safety stock is a buffer quantity to absorb demand variability, while consignment stock describes who owns goods held at another party's location.
- Not a bonded warehouse: A bonded warehouse is a customs-controlled facility for deferring duties, whereas consignment is a commercial ownership arrangement independent of customs status.
- Not vendor-managed inventory alone: Vendor-managed inventory is about who plans replenishment; consignment specifically concerns ownership remaining with the supplier until withdrawal.
How consignment stock works
Under a consignment agreement the supplier delivers goods into a stock location at or near the customer. Physically the goods sit with the customer, but for accounting purposes they stay on the supplier's books. Only when the customer draws stock — to use it in production or to sell it on — does a withdrawal posting occur, which transfers ownership and creates the basis for an invoice. The flow therefore separates two events that are normally simultaneous: the physical movement of goods and the financial transfer of ownership.
Why organisations use it
- Availability — material is on hand immediately, reducing lead time and stock-out risk for the customer.
- Working capital — the customer pays only on consumption, improving cash flow and tying capital up later.
- Customer retention — for the supplier, physical presence on site can strengthen the commercial relationship.
- Demand visibility — withdrawal data gives the supplier a clear signal of real consumption.
ERP and inventory treatment
Consignment stock complicates inventory because a single physical location can hold goods belonging to different parties. The ERP system must distinguish consignment stock from own stock in valuation and in the perpetual inventory records, and it must post the ownership transfer at withdrawal rather than at goods receipt. Replenishment is often driven by a reorder point or by agreed minimum and maximum levels, and the arrangement is frequently combined with just-in-time or vendor-managed replenishment so that the supplier refills the location automatically. Reconciliation between supplier and customer stock figures is a recurring operational task, because both systems must agree on what has been withdrawn.
Accounting and tax considerations
Because revenue is recognised only on consumption, consignment differs fundamentally from a normal sale at delivery. The supplier carries the goods as its own inventory until withdrawal, and the customer records a liability only when it draws stock. There are also cross-border tax implications: holding stock in another country can raise VAT and reporting questions, and the relevant rules in the EU should be confirmed case by case rather than assumed. Clear contractual terms on ownership, insurance, shrinkage and the cut-off point for invoicing are therefore essential. Within supply chain management consignment is one of several techniques, alongside safety stock policy, for balancing service level against the cost and risk of holding inventory.
Related Topics
Frequently Asked Questions
Does consignment stock count as the customer's inventory for tax purposes?
No — it remains the supplier's asset until consumed. The customer holds the goods physically but does not own them. The arrangement must be properly documented in commercial contracts and ERP records to support this treatment under tax audits. Sloppy documentation can lead tax authorities to treat consignment stock as effective sale, with adverse VAT consequences.
How does VMI relate to consignment?
VMI (Vendor-Managed Inventory) is the operational replenishment model where the supplier monitors and refills customer-side inventory. Consignment is the commercial-and-ownership model. The two often combine: supplier-owned consignment stock managed under VMI replenishment. They can also operate separately: VMI can manage customer-owned stock, and consignment can operate without VMI through periodic manual replenishment.
Can ERP handle consignment stock natively?
Major enterprise ERPs (SAP S/4HANA, Microsoft Dynamics 365 F&O, Oracle Cloud ERP, Infor LN) handle consignment natively for both supplier and customer sides. Mid-market ERPs (Sage X3, Business Central, abas, proALPHA) cover the common patterns; complex scenarios may need configuration or industry add-ons.