Consignment stock? No thank you

Related tags Supply chain management Biscuit

Slowly, I lower the digestive into my tea. I watch it absorb the liquid like a sponge. The extra weight combined with the now softer texture weakens its structure. This is where skill and experience are required to decide the precise moment when to pull it out from the mug. Too soon, and you are left with a dry biscuit. Too late, and the submerged part of the biscuit disappears into the abyss, turning the drink into a muddy debacle. This is about as much risk I am happy to take.

So if I was your supplier and you asked me to hold stock in your warehouse, which you would only pay for as and when you used, I would have to refuse. Consignment stock is about the supplier taking all the risk. Not for me, thanks. Sure, you might have an agreement that specifies your commitment to take the stock in a matter of months. Yet that is not helping the supplier's cashflow and you often see the client renegotiating these terms when he screwed up. Such terms are a licence for poor planning, as they delay the consequences.

Time and time again, businesses tell me they are not worried about reducing stock because it is on a consignment agreement. There is even a sense of pride from the purchasing department that they have managed to negotiate the supplier into taking all the risk. Well, here is the news: you are paying for it anyway. How else could the supplier afford to finance all this stock?

My biggest problem with consignment stock is the attitude of the customer. The practice encourages a complete abdication of responsibility within the client business. Unfortunately, this lack of regard for the supplier taking all the risk then becomes embedded in the company culture. So when you are part of a group of companies that has inter-company material flow, it becomes the norm to screw each other. And that is even more frustrating than dropping your soggy digestive biscuit into your mug of tea.

Hugh Williams  is founder of supply chain planning specialist consultancy Hughenden

 www.hughenden.net