How to manage consignment stock and vendor managed inventory

Vendor managed inventory (VMI), also known as consignment stock, is inventory owned by a supplier but stored at—or fulfilled from—another location. The retailer only pays for products once they're sold. Unsold goods can be returned to the vendor.

It's an attractive model for retailers: less capital tied up in stock, reduced risk of dead inventory. But for vendors, it requires careful tracking and clear agreements. Here's how to make it work.

The risk sits with the vendor

Let's be clear about who carries the risk in consignment deals.

As a retailer, consignment is low-risk. You don't pay until you sell. If the product doesn't move, you send it back.

As a vendor, you're carrying all the risk. You've produced or purchased the goods, shipped them to another location, and now you're waiting to see if they sell. If they don't, you're stuck with returned stock and the costs you've already incurred.

This asymmetry means consignment only makes sense for vendors when the retailer brings real value: prime shelf space, staff training on your products, marketing support, or access to customers you couldn't reach otherwise. Just "products on a shelf" often isn't worth the risk.

The legal essential: don't send an invoice

Here's a mistake that costs vendors dearly: sending an invoice with consignment goods.

In most countries, an invoice legally transfers ownership. Once you invoice, those goods belong to the buyer—even if they haven't paid, even if you called it "consignment." If the retailer goes bankrupt, that stock is part of their assets, not yours.

Instead, send a pro-forma invoice or a packing slip / sales order. These documents are non-binding. They describe what you've sent without transferring ownership. The actual invoice only goes out once goods are sold.

This distinction matters. Get it right from the start.

The tracking challenge

The hard part of consignment isn't the concept—it's the visibility.

Your stock is sitting in someone else's warehouse or on their retail floor. When they sell a unit, you need to know. When stock runs low, you need to replenish. When the consignment period ends, you need to know what's left.

Without a system in place, this becomes a mess of spreadsheets, phone calls, and guesswork. You're constantly asking "how many do you have left?" and hoping the answer is accurate.

How to handle consignment in Stockpilot

Stockpilot handles consignment through flexible warehouse setup and order routing.

Track consignment as a separate warehouse. Create a warehouse in Stockpilot for each consignment location—your retailer's store, their warehouse, wherever the stock sits. Use Zapier or the API to sync stock levels from their system to yours, keeping visibility without manual updates.

Include consignment in available stock. You can sum consignment warehouse quantities into your offered stock for sales channels. This means you can sell from consignment stock on your webshop or marketplaces, with fulfillment routed appropriately.

Route orders to the right location. When an order should be fulfilled from consignment stock, use conditional order splitting or manual routing. Forward the order to your retailer or their WMS via email (with packing slip and shipping label if needed) or via API to their system.

This gives you one view of all your inventory—owned and consigned—while keeping fulfillment flexible based on where stock actually sits.

Making consignment work for both sides

Consignment isn't just about moving risk. The best arrangements create value for everyone.

As a vendor, negotiate for more than shelf presence. Ask for product training, prominent placement, point-of-sale materials, online features, or regular sales reporting. If the retailer won't commit to adding value, consignment probably isn't worth your risk.

As a retailer, recognize that vendors taking consignment risk deserve support. Help them sell through the stock—it's in your interest too.

And for both sides: agree upfront on reporting frequency, replenishment triggers, the consignment period length, and what happens to unsold stock. Clear expectations prevent disputes.