For Australian suppliers, wholesalers and distributors

Consignment and Vendor Managed Inventory Integration

You have stock in a customer’s store, a hospital store room, a workshop bin or a reseller’s warehouse. You still own it. You are responsible for keeping it stocked, you cannot see it, and you find out what was used when somebody sends a spreadsheet, or when you visit, or when you count it at the end of the year and discover a gap.

Consignment and vendor managed inventory are excellent commercial arrangements. They win shelf space, they lock in supply relationships, and customers like them. They are also the arrangements most likely to be run on trust and spreadsheets, which is why the losses stay invisible until they are large.

Book a Consignment Stock Review (03) 9003 0111

Realistic ROI

You own it

Until it is used or sold

Which puts it on your balance sheet, in someone else’s building

Usage, not orders

What actually drives replenishment

The customer stops ordering, so consumption data becomes the whole signal

Invisible losses

Until a count or a dispute

Shrinkage in an unsupervised location is found late and argued about after

Two records

Yours and theirs, rarely equal

The reconciliation between them is the control, and it needs to be regular

Four Things That Make Consignment Different

This is not ordinary inventory in a second location. Four differences change the accounting, the systems and the relationship.

Ownership and revenue timing move together

Under a genuine consignment arrangement the goods remain yours until they are sold or consumed, which means the stock stays on your balance sheet and revenue is recognised at the point of use rather than at delivery. That has consequences for inventory valuation, for revenue reporting and for the timing of GST on the supply, and those are determinations for your accountant based on the actual terms of your agreement. The systems have to reflect their determination consistently, because getting this wrong misstates both inventory and revenue at the same time.

Consumption data is the whole signal

In a normal supply relationship the customer sending a purchase order tells you what to do. Under vendor managed inventory that signal disappears and you replenish based on what was used, so how usage is captured becomes the foundation of everything. Scan at the point of use, a periodic count, a feed from the customer’s own system, or a rep recording it on a visit. Each gives you different accuracy and different lag, and the choice determines how much safety stock you have to carry.

You are responsible for stock you cannot supervise

The location is controlled by someone else. You cannot see the shelf, you cannot control who takes from it, and you often cannot count it without arranging a visit. That means the design has to cope with data that is periodic, incomplete and sometimes wrong, and it means the reconciliation between your records and theirs is not an accounting formality. It is the main control you have, and it needs to be regular enough that a discrepancy can still be investigated.

Billing follows consumption, not delivery

Invoicing happens when stock is used, in arrears, based on data provided by or captured at the customer. That makes the accuracy of the usage data a commercial matter as well as an operational one, since it is what you are billing on. Disputes are common and they are usually about timing and counting rather than bad faith, so the arrangement needs an agreed reconciliation process, an agreed treatment for damaged and expired stock, and a clear statement of what happens to stock that cannot be accounted for.

What a Consignment Integration Covers

Six pieces. The first two are the foundation and the rest depend on them being right.

Right balance sheet

Stock ownership states

Stock held at customer locations represented as its own state in your inventory system: yours, at their site, not yet sold. Distinct from stock in your warehouse, from stock in transit, and from stock a supplier has consigned to you. Without these states the same goods are either double counted or missing from both sets of records.

Consumption data

Usage and sell through capture

Getting usage back from the customer site, by scanning at the point of use, by a feed from their point of sale or inventory system, by a periodic declaration, or by a rep recording it during a visit. Whatever the method, the capture time and the source are recorded so you know how current and how reliable each number is.

Stocked without orders

Replenishment triggers

Minimum and maximum levels per item per location, driven by usage rates rather than by a single global rule, with lead time and visit schedules taken into account. Replenishment raised automatically and, where a rep is involved, presented as a proposed order they can adjust before it is committed.

Discrepancies found

Remote counts and reconciliation

Scheduled counts at the customer site, whether performed by your rep or declared by the customer, compared against your expected position with the variance broken down and dated. Regular enough that a discrepancy is investigated while the transactions are still traceable rather than accumulating until an annual reckoning.

Invoiced correctly

Consumption billing

Invoices raised from confirmed usage on an agreed cycle, at the contract price for that account, with credits for damaged and expired stock handled under the agreed terms. The supporting usage detail attached to the invoice so a query can be answered without assembling evidence from three systems.

Traceable stock

Expiry, batch and recall handling

Knowing which batches sit at which customer location, so expiring stock can be rotated or recovered before it is written off, and so a recall can be actioned at the specific sites holding the affected batch. For food, medical and industrial goods this is frequently the reason the integration is funded in the first place.

Where Consignment Arrangements Leak Value

Task	Traditional	Integrated Properly	Notes
Knowing what is on the customer shelf	A spreadsheet, updated sometimes	A tracked position per location	The starting point for everything else, and often the first thing that surprises people.
Replenishing the right items	A rep judging it by eye	Driven by actual usage rates	Reps stay valuable for the relationship, they stop being the inventory system.
Stock that expires on their shelf	Written off when found	Flagged in time to rotate	Batch visibility at each location is what makes rotation possible at all.
Billing for what was used	Invoiced from a declaration	Invoiced from captured usage	Attaching the usage detail to the invoice heads off most disputes.
Annual count finds a shortfall	Argued about, split, written off	Found early by regular counts	A discrepancy found in March can be investigated. One found in June cannot.
A product recall	Every customer contacted	Only the sites holding the batch	For food and medical goods this alone often justifies the project.
Inventory value on the balance sheet	Consignment stock missed entirely	Counted in the right state	It is your asset until it is used, so it belongs in your inventory valuation.
Ending an arrangement	A long argument about what is left	A reconciled position to recover	Worth agreeing the exit terms and the counting method at the start.

Where Consignment and VMI Integrations Go Wrong

The accounting treatment is assumed rather than determined

Whether an arrangement is genuine consignment, and therefore when ownership passes, when revenue is recognised and when GST applies to the supply, depends on the actual terms of your agreement. It is a determination for your accountant, and the answer drives inventory valuation and revenue reporting at once. Systems configured on an assumption here can misstate both, and the error compounds every period until someone reconciles properly.

Usage data is trusted without verification

You are billing on numbers you did not capture yourself, in a location you do not control. Most discrepancies are honest, arising from breakages, samples, staff use and simple miscounting, but they still cost you. Build in periodic verification counts, compare declared usage against expected usage based on trend, and investigate the outliers. The point is not suspicion. It is that an arrangement without verification will drift, and the drift is always in one direction.

Consignment stock is left out of inventory valuation

Stock at a customer site that you still own is your asset and belongs in your inventory position, and stock a supplier has consigned to you does not belong in yours. Both errors are common and they run in opposite directions, so a business with arrangements in both directions can have two offsetting misstatements that hide each other. Represent each ownership state explicitly in the system rather than treating a customer site as just another warehouse.

The agreement does not say what happens to losses

Stock will go missing, expire, get damaged and occasionally be used without being recorded. If the agreement is silent, every instance becomes a negotiation and the relationship absorbs the friction. Settle in writing, before the arrangement starts, who bears shrinkage, how expiring stock is handled and credited, what the counting method is, how often reconciliation happens and what occurs on termination. The systems can then implement a rule rather than staging an argument.

Sharing data with the customer is treated as an afterthought

These arrangements work best when both sides see the same position, which means giving the customer visibility of their own usage, holdings and upcoming replenishment. That involves sharing data across an organisational boundary, so scope what each party can see, use per party access rather than a shared login, and where personal information is involved apply your obligations under the Privacy Act 1988 and the Australian Privacy Principles. Shared visibility resolves most disputes before they start.

The capture method does not suit the site

Scanning at the point of use gives the best data and it fails where staff are busy, gloved or working in a place where a device is impractical. A periodic count is less accurate but far more likely to actually happen. Choosing a method that the site will not sustain produces data that stops arriving after a few weeks, which is worse than a simpler method that keeps working. Match the method to the site rather than to the ideal.

How Yes AI Approaches Consignment and VMI

We start with the agreement, not the software

Ownership, shrinkage, counting and termination terms determine what the systems have to do. Where the agreement is silent we say so, because building an integration on an undefined commercial arrangement just moves the argument into the software.

Accounting treatment confirmed with your accountant

Revenue timing, inventory valuation and the GST position on consignment supplies are determined by your accountant based on your actual terms. We implement their determination consistently across the inventory and finance systems and document it, rather than substituting our own view.

Built, hosted and monitored by us

Usage capture, replenishment and billing run on a managed cloud automation layer we operate, designed for sites that are intermittently connected, with alerting when a location stops reporting. A customer site that goes quiet raises a flag rather than simply disappearing from the numbers.

A capture method each site will actually sustain

We look at how each location really works before choosing between scanning, a system feed, a customer declaration or a rep visit. A simpler method that keeps working beats an ideal one that stops after a month, and different sites in the same programme can reasonably use different methods.

From Trust and Spreadsheets to a Tracked Position

Five steps. A tracked position for the first customer locations is normally live within four to six weeks.

Establish the commercial terms

Ownership, when title passes, who bears shrinkage, how expiring stock is credited, the counting method, the reconciliation frequency and what happens on termination. Where terms are missing, we flag them for you to agree before the build.

Model the ownership states

Stock at customer locations represented as its own state in your inventory system, separate from warehouse stock, in transit stock and any stock consigned to you by your own suppliers, with the accounting treatment confirmed by your accountant.

Choose and build usage capture

Per site, whichever method that location will sustain: scanning, a feed from their system, a periodic declaration or a rep visit. Capture time and source recorded so the reliability of each number is visible rather than assumed.

Automate replenishment and billing

Minimum and maximum levels driven by usage rates, replenishment raised automatically or proposed to the rep, and invoices generated from confirmed usage with the supporting detail attached so queries are answered from the invoice itself.

Reconcile, verify and share

Scheduled counts compared against the expected position with variances broken down, alerting when a location stops reporting, and shared visibility for the customer so both sides work from the same numbers.

FAQ

What is the difference between consignment stock and vendor managed inventory?

They often occur together but they answer different questions. Consignment is about ownership: the goods sit at the customer site and remain yours until they are sold or used, so they stay on your balance sheet until that point. Vendor managed inventory is about who decides replenishment: you monitor usage and restock without waiting for a purchase order. You can have vendor managed inventory where the customer owns the stock on delivery, and you can have consignment where the customer still orders. The systems need to handle each aspect explicitly.

How do we know what has been used if we cannot see the site?

Through whichever capture method that site will genuinely sustain. Scanning at the point of use gives the best data where it is practical. A feed from the customer’s own point of sale or inventory system is excellent where they will provide it. A periodic declaration or a count during a rep visit is less precise but far more reliable than a method staff abandon after a month. Whatever the method, record when each number was captured and where it came from, so you know how current and how trustworthy your position is.

Whose balance sheet does consignment stock sit on?

Under a genuine consignment arrangement it remains yours until it is sold or consumed, so it belongs in your inventory valuation even though it is physically in someone else’s building. The mirror applies to stock a supplier consigns to you, which is not yours to count. Both errors are common and they run in opposite directions, so a business with arrangements both ways can have offsetting misstatements. The treatment depends on the actual terms of your agreement, so have your accountant determine it and then make the systems reflect that consistently.

When do we invoice and when is GST payable?

Billing normally follows consumption, so invoices are raised in arrears from confirmed usage. The timing of the supply for GST purposes, and therefore when it falls into your BAS, depends on the terms of the arrangement and on your accounting basis, and it is a determination for your accountant rather than something to infer from how the system was configured. What the integration must do is produce accurate, dated usage data and invoice consistently from it, with the supporting detail attached so a query can be answered without reassembling evidence.

How do we deal with stock that goes missing at a customer site?

Primarily by agreeing in advance who bears it, because the alternative is negotiating every instance and letting the friction accumulate in the relationship. Operationally, count regularly enough that a discrepancy can still be investigated, compare declared usage against expected usage based on trend so outliers surface, and share the position with the customer so both sides see the same numbers. Most discrepancies are honest, arising from breakage, samples and miscounting, but an arrangement without verification will drift and it will drift one way.

Can our customers see their own stock position?

They should, and it is usually the change that improves the relationship most. When the customer can see their holdings, their usage history and what is coming on the next replenishment, disputes fall away because both parties are looking at the same numbers rather than exchanging spreadsheets. Scope carefully what each party can see, use individual access per organisation rather than a shared login, and where personal information is involved apply your obligations under the Privacy Act 1988 and the Australian Privacy Principles.

Is this worth doing for a small number of sites?

It depends on the value of the stock rather than the number of locations. A handful of sites holding high value or dated goods, where a recall would need to be actioned precisely or where expiry write offs are material, can justify the work easily. A larger number of sites holding low value consumables often does not, and in that case better counting discipline and a simple periodic declaration may be the right answer. We would rather tell you that than build an integration whose running cost exceeds the losses it prevents.

See the Stock You Own in Someone Else’s Building

Book a call. We review your consignment arrangements, show where the position is untracked and what it is likely costing, and give you a priced plan. The review is yours either way.