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EIDX/CompTIA ConsignmentScenario III
Consignment with Forcast-Based Supplier Managed Inventory
Supplier-managed inventory process. Buyer is in possession
of inventory owned by the seller. Buyer reports consumption, transfer
or resale. Report of consumption/transfer/resale triggers transfer
of ownership and billing/payment cycle; seller calculates replenishment
requirements based upon consumption information (i.e. used, pulled
from stock, sold, etc.). Optionally, seller may compare buyer’s
planning forecast to consumption data when evaluating requirements.
Buyer is typically a retailer selling to consumers or an end customer,
such as a prime contractor (OEM) or contract manufacturer, but may
be a distributor or value-added reseller. Seller may be a component
supplier, contract manufacturer, distributor, etc.
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| Step |
Description |
| 1. |
Pre-Order Model 2:
The buyer and seller negotiate the terms for the consignment
process and the related Blanket Purchase Orders. The pre-order
process includes the establishment of pricing and a Terms and
Conditions Agreement. |
| 2. |
Buyer issues Blanket
Purchase Order (BPO) to seller per Order Model 2 component of
Replenishment Scenario 4. |
| 3. |
Seller receives Consumption
Plan per the Forecast Model 3 component of Replenishment Scenario
4. Seller nets forecast data to determine if changes from
a previous plan are within acceptable tolerance for change,
to determine whether replenishment is required during the current
planning cycle, and to generate a plan for future replenishment.
The Consumption Plan may include report on inventory consumption
or resale activities that have occurred since the previous schedule
was sent. |
| 4. |
If supplier determines
that replenishment is required during the current planning cycle,
the seller generates a release against the buyer's BPO per the
Order Model 3B component of Replenishment Scenario 6. |
| 5. |
Seller transfers (ships)
goods to consignment warehouse per appropriate Shipment Model. The
Shipment Scenario is embedded within Order Model 3B. This
is because the Shipment Notification document is serving a dual
purpose in Supplier-Managed Inventory, acting both as Ship Notice/Manifest
and as a "reverse release" informing the buyer that
a release has been made against its BPO. If a third-party warehouse
is used, see Consignment Scenario 4 - Third-party Warehouse,
Buyer-Contracted or Consignment Scenario 5 - Third-party Warehouse,
Seller-Contracted. |
| 6. |
The supplier generates
a schedule of planned replenishment resulting from netting out
of buyer's Supplier-Managed Inventory (SMI) data. If needed,
buyer sends back a response to the Replenishment Schedule.
Generally, a response is sent if buyer's evaluation of the data
indicates that a potential problem may exist with the Replenishment
plan, such as a potential for violation of target minimum and
maximum inventory levels. |
| 7. |
There is more than one
choice here because reporting a transfer-of-ownership event
in a consignment process very often means using business message
that is already being exchanged, and may or may not require
the addition of a data element or two. In this consignment scenario,
reporting the transfer-of-ownership triggers billing and may
trigger replenishment.
Since the consignee is already sending a supplier-managed
inventory forecast, the consumption data may be included along
with the other inventory data, and can be used to trigger
billing.
- If the Consumption Schedule is sent less frequently than
consumption events, and the supplier wants real-time reporting
of consumption events in order to trigger billing and start
the clock for payment terms, instead of incurring more overhead
by adding another set of document exchanges to the process,
consider instead streamlining the process by using a pay-on-consumption
financial model (consignee sends automatic payment when
usage occurs).
- Real-time reporting of consumption events does make sense
if the The consumption is being reported more
frequently than the Consumption Schedule so that the supplier
may monitor inventory levels, and replenish as needed, but
the replenishment quantity is based on the data in the Consumption
Schedule.
If the Consumption Schedule is not used to report usage and
trigger billing, the following options are described in more
detail in the supporting documentation:
- Inventory Management Model 1
- Sales Reporting Scenario
- Inventory Management Model 2
- Inventory Management Model 3
- Inventory Management Model 4
|
| 8. |
Inventory Management
Model 1: (Optional) Inventory is physically located at
buyer’s facility. Buyer performs inventory counts and
reports to seller (scheduled, as-needed, or at seller request).
Seller may invoice for inventory shrinkage.
The buyer may also use the inventory report to report billable
consumption of inventory. In that case, Step 3 above
may not be required, but at least one of Step 3 or Step 6
is required.
|
| 9. |
(Optional) The buyer
reports may report inventory adjustments, if applicable.
See Inventory Management Model 10 or adjustments may be included
in Inventory Reporting per Inventory Management Model 1 (Step
6). |
| 10. |
Financial Scenario: Ownership
transfers from seller to buyer per contractual terms.
Seller invoices buyer or payment is triggered per appropriate
Financial Model. For this consignment scenario, a pay-on-consumption
financial model is recommended. Seller may also bill for
inventory shrinkage per contractual terms. |
Activity Diagram
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| Step |
Description |
| A. |
At start state A, the
buyer and seller are ready to negotiate terms for consigned
inventory. |
| 1. |
Order Model 2:
Buyer issues a blanket request for quote and the seller sends
a Quote. This step also includes the establishment of
a Terms and Conditions agreement. See Pre-Order Model
2 for details. |
| B. |
At end state B, the
buyer and seller have not agreed on terms. The process
may simply end, or another iteration of the Pre-Order process
may begin. |
| 2a. |
If the seller's quote
is acceptable and agreed upon terms and conditions exist, the
buyer issues Blanket Purchase Orders for parts that are part
of the consignment program. The seller sends back responses
to the blanket purchase orders. |
| C. |
At Start state C, the
buyer is ready to execute an iteration of the material planning
process. |
| 2b. |
The buyer generates
consumption plan per the Forecast Model 3 component of Replenishment
Scenario 4, including planned consumption (sales and/or usage,
a/k/a gross requirements), available inventory levels, inventory
receipts, and minimum and maximum inventory level targets. The
buyer sends the consumption schedule to seller. The supplier
nets forecast data to determine if changes from a previous plan
are within acceptable tolerance for change, to determine whether
replenishment is required during the current planning cycle,
and to generate a replenishment schedule for future replenishment.
The consumption plan may include report on inventory consumption
or resale activities that have occurred since the previous schedule
was sent. |
| D. |
At end state D, no replenishment
is required for this planning cycle. |
| 2c. |
When inventory needs
replenishment, releases are issued against the Blanket Order.
Releases are supplier-managed, per Replenishment Scenario 4
and when replenishment is needed, the seller transfers (ships)
goods to consignment warehouse (buyer’s or third party’s
facility).
After replenishment, the consigned inventory is physically
in the possession of the buyer or the buyer's agent, but is
owned by the seller and remains on the seller's books.
Buyer and seller now wait until the activity that triggers
transfer of ownership occurs.
|
| E. |
At start state E, the
supplier has generated a Replenishment Schedule and is ready
to share it with the buyer. |
| 2d. |
The the buyer requires
it, the supplier sends its Replenishment Plan to the buyer,
who uses it to monitor the schedule and ensure it will keep
inventory within target minimum and maximum inventory levels.
Since the buyer is not scheduling deliveries, another way
the buyer uses Replenishment Schedule generated by the supplier
is to plan the Receiving Department's workload.
|
| F. |
At end state F, the
Replenishment Schedule has been processed. |
| G. |
Start state G occurs
if the supplier requires inventory usage to be reported separately
from or more frequently than a consumption schedule or a standard
inventory report. |
| 2e. |
In this consignment
scenario, reporting the transfer-of-ownership triggers billing
and may trigger replenishment.
Since the consignee is already sending a supplier-managed
inventory forecast (Consumption Schedule) (Forecast Model
3 component of Replenishment Scenario 4), the consumption
data may be included along with the other inventory data,
and can be used to trigger billing.
- If the Consumption Schedule is sent less frequently than
consumption events, and the supplier wants real-time reporting
of consumption events in order to trigger billing and start
the clock for payment terms, instead of incurring more overhead
by adding another set of document exchanges to the process,
consider instead streamlining the process by using a pay-on-consumption
financial model (consignee sends automatic payment when
usage occurs).
- Real-time reporting of consumption events does make sense
if the consumption is being reported more frequently than
the Consumption Schedule so that the supplier may monitor
inventory levels, and replenish as needed, but the replenishment
quantity is based on the data in the Consumption Schedule.
If the Consumption Schedule is not used to report usage and
trigger billing, the following options are described in more
detail in the supporting documentation:
- Inventory Management Model 1 - Report Inventory Levels,
Buyer to Seller
- Sales Reporting Scenario
- Inventory Management Model 2 - Report Transfer/Resale
with Customer Detail ("Distributor Sales")
- Inventory Management Model 3 - Report Consumption
or Resale - No Customer Detail ("Retail Sales")
- Inventory Management Model 4 - Report Inventory Consumption
- Buyer to Seller
|
| H. |
At Start State H, (Optional)
The buyer and seller have agreed that the buyer will report
the status of the consigned inventory to the seller (scheduled,
as-needed, or at seller request). |
| 3. |
Inventory Model 1 -
The buyer performs inventory counts and reports to seller. The
seller may invoice for inventory shrinkage. The buyer
may also use the Inventory Report to report billable consumption
of inventory. In that case, Inventory Model 4 - Step 5
below - is not required. |
| I. |
At Start State I, the
buyer or buyer's agent has done an inventory count and needs
to report one or more adjustments. |
| 4. |
Buyer reports inventory
adjustments to seller. Resolving discrepancies is usually
handled manually. |
| J. |
At End State J, there
are no billable shrinkages reported, so seller is not triggered
to invoice the buyer for lost inventory. |
| 5. |
Ownership transfers
from seller to buyer per contractual terms. The seller
invoices buyer or payment is triggered per appropriate Financial
Model. For this consignment scenario, a pay-on-consumption
financial model is recommended. |
| K. |
At End State K, the
ownership of the inventory has been transferred, and payment
has been made. |
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