Consignment is one of the most common system used in business, especially businesses that sell physical products. This system is very beneficial for businesses as it is run by selling products from the manufacturer and then reselling it. This is certainly a very advantageous system to implement especially for novice businesses with minimal capital.
Definition of Consignment
In the business field, consignment is a collaboration between two parties. The party who delivers the goods on the consignment is called the supplier of the goods and then there is the seller. Consignment allows the supplier to provide the seller with the availability of goods, but will not receive income if the product has not been sold. In this case, the sale of goods is carried out by the seller.
Consignment in the business field is referred to as depositing products to sales agents by making payments. The buyer or supplier of goods simply sells the goods by entrusting them to the seller then the profits are divided based on the final sale.
Tips on Consignment Sales for Mutual Benefit
Must Have a Mutually Beneficial Consignment Agreement
The first thing that must be done is to make a mutually beneficial agreement so that no one feels disadvantaged when the supplier of the goods carry out their respective roles to the fullest. Agreements made are usually open and clear, because they are made to avoid fraud.
Choose the product that fits the store
The supplier needs to pay attention when choosing a retailer so that the deposited product sells well. The more products sold, the better, because it will result in high profits. In addition, it is not only the supplier of goods who profit, the retailer will also get the same thing.
Must Know the Products Well
In cooperating with the consignment system, both the sender and the recipient must understand the product well. When you know the product, you’ll also understand the responsibility of how to store it in a good quality condition.
Products for sale must be placed in a visible place
The shipper must ensure that the product deposited with the retailer is placed in a visible place. This condition affects the possibility of selling them. The product sender must have a role in determining where the goods will be placed.
Must consider long-term Cooperation
Profitable cooperation can be done in the long term. Even though the deposited product is sold out, the sender can always update the stock of new goods.
Also read: Understanding Revenue Stream – Its Types and Functions
The Benefit of Consignment
For Product Owner (Consignor)
No Need to Rent a Shop
The product owner does not need to have a store to be able to market their product. They have entrusted the product to a retailer who most likely already has a store. Besides that, there is no rental fee, this is certainly profitable because there are no costs incurred for it so that the profits taken are also can be higher.
Introducing the Brand
For novice businesses, this method makes it very easy to introduce the products being sold so that they are easily recognized by many people. Especially if the trademark can be introduced directly to new customers, so the benefits that arise are also useful in the progress of the company when the product is already known to many people.
Greater Sales Opportunity
Business is how to make a profit because it is an important factor for the survival of a company. This profit is only obtained if the goods or products are selling well, therefore the way to do this is by consignment. By only leaving the product in more than one store.
No Need to Pay for Storage
Suppliers and consignees when making consignment sales do not need to pay for storage. There is no charge for that, besides there is no storage space because unsold products can be immediately disposed of with a note that the product has entered an expiration date.
Easy to Which Products Work and Do Not Work
Consignment sales make it easy for the supplier or owner of the goods to know which goods are selling well in the market and which are not. That way, product owners can dissect and sort out which products will be sent to retailers which then sell well and provide a lot of profit.
Can Have Longer Relationships with Retailers
The existence of beneficial cooperation makes what has been done rise to the next level. Namely a relationship that can last longer for the shipper and retailer because of the benefits that are highly desired by both parties. A business that is run only for profit.
The advantage felt by the product owner is that the goods produced can be sold in the market through a business that is run with a consignment system. The profits that continue make the owner of the product experience an increase which has an impact on the progress of the company.
For Product Consignee (Consignee)
No Need To Pay For Items
In the consignment agreement, one of the benefits the consignee get is they do not need to pay for the goods because the supplier only entrusts their goods to be sold. Even without spending capital, the availability of goods in stores will increase and it makes buyers interested in purchasing them.
Unsold Items Can Be Returned
The recipient of the goods will also feel the benefits even if the goods are not sold, which is only by returning them. The recipient or retailer does not have to incur costs to compensate for unsold or unsold products or goods.
Avoid running out of stock
Like a food stall that has many buyers, the condition of the stock of goods must also be considered not to run out. With a consignment system, the recipient of the goods does not need to worry about this because the stock of goods will always be there.
Entrusted Items Can Interest New Customer
The goods sent are always available, because consignment sales provide benefits to the recipient if they have new customers. In general, the emergence of new customers is because they are interested in the goods being sold, such as because the goods issued are products that are trending.
The Drawback of Consignment
For Product Shipper (Consignor)
Will Not Receive Payment in Advance
What is not the characteristic of the consignment system is that it poses a risk for suppliers who have deposited their products with retailers, i.e. they will not receive payment in advance. Because of this, it becomes a drawback of the consignment business system that occurs between the supplier of the goods and the seller.
Can Experience Quite a Loss
Losses are indeed a risk factor that must be borne by business people, consignment does not only provide a lot of benefits. But there is also the risk of big losses that could occur if something goes wrong. One example is when suppliers choose the wrong retailers, making the goods that are deposited difficult to sell.
Must Take Unsold Items
This condition is also a risk for suppliers who apply a consignment system, goods that are not sold and have entered the expiration period will be taken back. Conditions that can cause harm to the supplier.
Not All Items Are Suitable for Consignment Sales
Consignment sales can only apply to certain types of goods or products, not all of them can use this system. The product owner’s foresight is tested because they must determine which products can be sold by implementing this consignment system.
For Product Consignee (Consignee)
Must Give Space
Inevitably, if the consignee agrees to cooperate with the product provider through this system, they must provide space so that the product can be seen clearly by consumers. It may be a little problematic for basic food stalls because they usually appear in a place that is not sufficient.
Can Generate Conflicts If Consigned Items Are of the Same Type
In addition to providing many benefits, the consignment system can have negative impacts such as causing conflict. This condition occurs when the same product is deposited with the same retailers, this can create conflict.
Shipper Does Not Want to Bear the Damage
The thing that the consignee hates the most in the consignment system is when the supplier does not want to bear the damage. This is stated in the agreement that requires the recipient of the product to replace the damaged goods even though they do not know why.
Examples of Consignment
Consignment Sales Between Large Manufacturers and Small-Scale Retail Stores
This condition can occur because large companies are targeting small and private-based retail stores. Usually, on the side of the road or inside the village, some products are sold such as snacks and products for the daily needs of the people around the shop.
Consignment Sales Between Big Stores and MSMEs
Usually found in large stores with MSMEs. This system is used when an individual with a small-scale product and wanted to market their product by submitting a proposal to the supermarkets to sell the product to the MSME.
This is a brief explanation of the consignment system in the business world, a detailed explanation can be found in the Sampoerna University journal starting from the definition, advantages, and disadvantages to examples. Sampoerna University’s Faculty of Business invites students to learn more about the business world.
In addition, Sampoerna University also implements an international standard curriculum that not only provides knowledge in theory but also allows students to practice it directly. In addition, Sampoerna University also has a quality teaching staff of international standards. This prepares our students to be work-ready and world-ready.
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