Purchasing on Consignment: Scan-Based Trading Pros and Cons

Scan-based trading or SBT, is an innovative retail system that helps retailers, suppliers, and distributors align processes based at the point of sale (POS). Unlike traditional retail–supplier models, SBT is effectively a consignment model, where the vendor retains ownership of the inventory at store level and is paid once the product is sold to the consumer. 

The supplier or distributor has access to daily POS information in an SBT model, which automatically records data when a product is scanned and sold. Scan-based trading reduces operational costs, increases visibility over the supply chain, helps suppliers streamline distribution, automates processes, and improves business relationships between retailers and distributors. If you are ready to explore an alternative business model, here are scan-based trading pros and cons you should know. 

What is purchasing on consignment?

Purchasing on consignment is a retail model that streamlines the logistics for retailers, suppliers, and distributors. Here, the supplier or distributor owns the inventory in the retailer's store. This means retailers can forgo upfront inventory costs and remit payment to suppliers once the item sells to the consumer. Suppliers enjoy more control over the types and quantity of inventory stocked and are better positioned to grow sales with access to retailer point of sale data.

How does it work?

Real-time visibility over sales and available inventory allows the supplier or distributor to better manage stock and the replenishment process. How? When retailers sell products to the customer, they collect point of sale data and send it to the supplier. The supplier then uses the POS data to create an invoice for goods sold, including details about specific goods sold (UPC specific), by store, and by day of the week.

Both retailers, suppliers, and distributors want to sell products to consumers. However, logistical constraints in the conventional retail model often limit the efficient flow of goods. 

• First, the retailer may not have the capital or cash flow to manage inventory carrying costs. These include the cost of purchasing stock, managing stock and employees, depreciation, taxes, and insurance. 
• Second, even if the retailer can purchase the stock, they are likely to overstock, especially when there are supplier discounts. Unfortunately, while this may reduce inventory costs in the short term, the retailer may fail to sell quickly enough to pay the distributor.
• Third, the retailer has to wait until they sell the goods to recoup costs and pay the distributor. If a retailer does not achieve sufficient sales, they may delay payments to the supplier. Any delays in payments affect the retailer–supplier relationship. 
• Fourth, because demand may change, retailers often find themselves with too much or too little stock at any given point. 
• Fifth, the retailer in many cases absorbs the liability of shrink.

However, with SBT, the supplier retains inventory ownership, which means the retailer does not have to worry about carrying costs. The retailer also delivers payments once a good is scanned and sold to a consumer. Thus, it's only at the point of sale that ownership of goods moves from the supplier to the retailer. The supplier also has a better understanding of the demand for their product and can optimize stock.

Scan-Based Trading Pros vs. Cons 

Advantages of SBT

• Reduce carrying costs –Retailers reduce carrying costs such as the cost of purchasing goods, storage costs, employee management costs, depreciation, and taxes. 
• Improved reconciliation –The retailer and the supplier work with POS data from scanning goods which improves invoice and payment reconciliation.
• Improved automation and inventory management –SBT systems improve automation in inventory control, sales, and invoice generation. As a result, both retailers and suppliers reduce manual data entry, enhancing information accuracy, storage, sharing, and manipulation.
• Builds trust –The supplier and retailer have access to accurate inventory and sales data, which builds trust between the retailer and the supplier. 
• Real-time visibility –As the supplier, you have real-time visibility over the sales process and stock levels. You can replenish inventory as required to avoid oversupply or being out-of-stock.
• Reduce marketing –As the supplier, you can reduce the time spent marketing goods to retailers. For example, you can introduce new products to the retailer's stock at no cost to them, which improves the probability of generating incremental sales.

Disadvantages of SBT 

• Investment –Suppliers and retailers need to make an initial SBT software investment to streamline POS data, invoice reconciliation, and payments. However, this investment eventually pays off.
• Reliant on other parties –While the supplier has access to POS data, they cannot manage a retailer. They rely on retailers to scan products at the point of sale. 

What Scan-Based Trading Means For Your Business 

SBT depends on synchrony between a retailer and a supplier. First, both parties should agree on their priorities to avoid any confusion. For example, both parties need to be realistic about achievable sales to reduce inventory problems. As the supplier, you cannot understock an item to ensure that it sells out.  Therefore, a good SBT model relies on a good business relationship between the retailer and supplier. 

Once you've aligned your priorities and management issues, it's time to consider an SBT software solution. Customizable solutions are the best way to achieve efficiency in the SBT model. An SBT solution that captures the following is essential:

• POS data 
• Invoices and payments 
• Inventory levels 
• Promotions and offers 
• Credits 
• Deliveries 

Scan-Based Trading Software

An advanced SBT software automates data collection and sharing, reduces manual input and effort for either party. Once you move the inventory to the system, the stock levels change automatically when you scan an item during a sale.

The supplier, on the other end, has access to real-time sales and inventory data –using sales records to create an invoice and send via software. As the retailer, invoice reconciliation is simplified since all the data you need is available in the system. 

Conclusion  

Retailers and suppliers can improve business through consignment arrangements, more commonly known as scan-based trading. With SBT, you can reduce inventory costs, solve oversupply and undersupply, avoid manual data entry and enjoy timely payments. Partnering with the right software vendor helps you achieve the benefits of SBT. The iControl Scan-Based Trading (SBT) system improves automation and data management in SBT. Reach out for a free demo.