Certified Supply Chain Professional (CSCP) Practice Exam

What does consignment in inventory management involve?

1. Supplier gains ownership of all sold inventory

2. Supplier places goods at customer location without immediate payment

3. Customer must pay upfront for inventory

4. Customer acts as a supplier for the vendor

The correct answer is: Supplier places goods at customer location without immediate payment

Consignment in inventory management refers to a specific arrangement where a supplier places goods at a customer's location without requiring immediate payment from the customer. This means that the title of the goods remains with the supplier until they are sold. The customer has the inventory on hand to sell it but only pays for the items once they have been sold to the end customer. This arrangement allows for reduced financial risk for the customer since they do not have to pay upfront for the inventory. It also helps suppliers by allowing them to maintain a presence in the market while minimizing their inventory carrying costs. In contrast, the other options involve arrangements that do not align with the concept of consignment. For instance, option A implies that ownership transfers immediately upon delivery, which is not the case in a consignment model. Option C requires upfront payment, contradicting the key feature of consignment where payment is deferred. Lastly, option D suggests a reversal of roles where the customer supplies the vendor, which does not apply to the typical consignment setup. Understanding this distinction is essential in effectively managing inventory relationships and can aid in making informed decisions in supply chain management.