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