Consignment stock inventory policy: methodological framework and model

Abstract

Consignment stock (CS) is an innovative approach to supply and stock management, based on a strong and continuous collaboration between vendor and buyer to create a ‘win-win’ situation, where both partners have equal gains. An analytic formulation of CS policy with obsolescence has been proposed in Persona et al. (2005). This article considers new critical factors (present in several industrial environments) providing a logical extension of the above mentioned study. The proposed methodology addresses, in particular, the design of a new stock policy in an industrial environment with demand variability, stock-out risk and limited warehouses space. The analytical model presented demonstrates that a traditional stock policy, such as the economic order quantity approach is always more expensive than the consignment stock approach. In addition, the benefits of the CS policy to the supply chain are consistently high including when applied to realities with high demand variation and space limitations.