Some months back, I wrote about Dealing with Inflation. Amongst the concepts was an “Allocated stock agreement with suppliers to hold a certain quantity of stock kept solely for you, then delivered and invoiced as you need it (also known as ‘Consignment Stock’ depending on where the goods are located).” I’ll expand on this and explain further.
We are moving to an era of stock shortages, longer lead times and increasing cost. At the same time, councils are tight on budget, some dealing with disasters and some unable to fill staff vacancies. One tool in your arsenal is consignment stock and reserved stock. These can both be used effectively for high turnover, high value products, those subject to limited availability and those likely to be needed at short notice. The products will typically be your more important purchases. The idea is to implement a supply arrangement whereby the supplier organises the stock to be held ‘on-hand’ for council without council being committed to pay anything until an actual requirement comes up. (If you do this well, you can also lock-in the price of the product for a specific period without being committed to take any or all the stock. In fact, subject to terms, the stock will remain the supplier’s property.)
With the Consignment Stock, the product is delivered to your premises (typically in an agreed bulk quantity). No charge is made on council yet. Council then removes quantities of product from time to time, as needed. At the end of each month, the supplier representative and you do a stock count and council is invoiced for the quantity taken.
‘Reserved Stock’ is another version of this concept. The difference is that the product remains at the supplier’s warehouse. However, council can still call up deliveries as needed.
The benefits of these approaches are that council only pays for what it takes, product availability is guaranteed, prices may be able to be fixed for a period and the need to accurately forecast ahead is avoided. Ordering process can also be simplified.
But there are risks. The biggest one relates to Consignment Stock and record keeping. Most councils need to ‘charge’ each issue to a cost centre. If your people do not keep good inventory records, when you come to do the monthly stocktake, you’ll find you can’t account for the quantity that have been taken. (I’ve witnessed this numerous times and it can be very frustrating.) Other risks relate to ownership, custody, damage and payment. Its best to negotiate an arrangement where you have the product available, but risk is with the other party (if practical). Note that council cannot absolve itself of some risks e.g., damage of goods on council’s premises.
Think about this concept and see if it might work for you. Don’t try to do it too broadly – its best used in limited circumstances and if done well, will save you time and heartache.