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Thoughts around outbound inventory management and consignment

Posted by Joel Schipper on November 3, 2015

These were my thoughts from a recent Executive Forum hosted by ExecRank, a web search firm for boards of directors.

The larger business process problems in outbound inventory management revolve around how to gracefully handle a customer’s request to ship product to a consignment location, then draw down that inventory, and eventually invoice the customer for the consumption.  Usually there is an agreement in place that specifies which items are eligible for consignment, a target stocking level by location, a reorder point and reorder quantity, and a resupply and billing policy as it may be inefficient to resupply and invoice for each consumption transaction.

Once that agreement is in place, and the customer locations are identified, the next challenge is to accept these transactions seamlessly as just another part of sales order processing because the customer may be mixing normal shipments and consignment shipments in the same transaction or order transmittal; neither the customer’s people nor your customer service representatives want to parse out and separately handle the consignment transactions.  So these consignments need to be taken in the same order flow process as normal orders.  And, of course, there is the need to efficiently track what may be millions of closets, trunks, and shelf locations containing a very large number of SKU’s (stocking items).  The problem set goes way beyond “Excel” spreadsheet” solutions!

A recent improvement in this area is a new software application just released by Oracle for the 9.2 JD Edwards ERP suite.  With input from very large medical device companies, as well as consumer products and industrial supply firms, this new application specifically addresses each of the business problems above, beginning with a specific agreement, a method of identifying the consignment items as different types of order lines so that the sales order system can configure appropriate process flows, whether the customer is asking for a shipment, or is notifying the provider of a consumption.  Replenishment and billing guidelines are contained in the agreement, and trigger the correct response for each customer and location.

By finding the right value-added steps in the process, and creating a configurable process that allows standardization of the business process flow while allowing for critical regional or divisional differences, this new piece of automation supports increasing the trust between partners while lowering their mutual cost of doing business together.


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