What does the term "consignment inventory" mean?

The term "consignment inventory" refers to inventory that remains the property of the supplier until it is actually used or sold by the buyer. This arrangement allows the buyer to hold stock without incurring ownership costs until it is required, effectively reducing the financial burden on the buyer and helping to manage cash flow more efficiently. By retaining ownership until the goods are utilized, the supplier also maintains the ability to oversee the inventory until it is either sold or consumed.

This concept is particularly advantageous in situations where demand is uncertain or seasonal, as it provides flexibility and reduces the risks associated with excess stock. Businesses can optimize their inventory management practices while ensuring they have access to the necessary materials when needed.