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Consignment Inventory

Overview

Consignment inventory is inventory that’s owned by a supplier but stored at a business site. When you’re ready to consume or use the inventory, you take over the ownership of the inventory. 

Example in Dynamics 365

In this example scenario, company USMF has a consignment agreement with vendor US-104 for the raw material M9211CI.

  1. A consignment replenishment order is manually created by someone in USMF, based on the expected demand. The order is created for vendor US-104 and a line is added for item MS9211CI.
  2. The vendor gets informed about the expected delivery. This can happen in one of three ways:
    • Someone working at USMF sends the order information to the vendor.
    • The vendor can monitor the expected inventory on-hand using the vendor collaboration interface.
    • Someone working at USMF filters the data on the On-hand inventory page to show only the records for vendor US-104, where the receipt status is Ordered, and then sends this information to the vendor.
  3. The inventory is delivered from US-104 to USMF.
  4. When the material arrives at USMF, the consignment replenishment order is updated with a product receipt. Only the physical quantities of the vendor-owned inventory are recorded. There are no general ledger transactions created, because the inventory is still owned by the vendor.
  5. The vendor monitors updates to the physical on-hand inventory using the On-hand consignment inventory page.
  6. Now that the physical inventory is on-hand, the production process reserves the vendor-owned inventory and starts the production order for the finished goods that are going to consume the raw material M9211CI.
  7. The owner of the reserved raw materials that are going to be consumed in today’s production is changed from US-104 to USMF. This is done using an Inventory ownership change journal. This process creates purchase orders where the Origin field is set to Consignment.
  8. The vendor monitors the consumption (change of ownership) on the Products received from consignment inventory page and issues an invoice based on the agreements between the two companies.
  9. The production process consumes the raw material via a production picking list. The physical reservation is automatically updated to reflect that the on-hand inventory is owned by USMF.
  10. The invoice from US-104 is processed against the purchase orders which were auto-generated when the inventory ownership change journal was processed. Payment is made to vendor US-104 for the inventory that was consumed.

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