Agreements – Vendor Managed Inventory
When it comes to the contract portion or contract piece for consignment inventory or vendor managed inventory you will want your form to include details on how the inventory will be managed both by the Consignee and the Vendor. Items like storage, replenishment, returns are just a few areas you need to cover.
Before we get too deep into details lets clarify or define the parties typically involved in a consignment transaction. Consignee is the business, person, agent, organization which merchandise is consigned or Consignee is the receiver of the goods not yet owned. Consignor is the Vendor or company which owns the inventory until it is used or sold by the consignee. Now that we have that straight, lets move into some areas you should address in your vendor consignment agreement.
Inventory Management: Consignee shall store and manage products produced or supplied by Vendor (the “Products”). All products shall be delivered to Consignee on a consignment basis. Consignee and Vendor shall mutually agree on which Products will be consigned to Consignee under this Agreement before the Products are delivered to Consignee’s Facilities. For purposes of this Agreement, all Products which have been delivered to and received at the Facilities shall be referred to as “Managed Inventory”.
Another piece which will need to be negotiated or identified is where you will store or house the inventory
Space Allocation. Consignee shall store the Managed Inventory at the ________________ (location). Consignee reserves the right to store the Managed Inventory at other Consignee facilities or at a third party warehouse location, provided that it advises Vendor of where the Managed Inventory is located and that it bears all costs associated with relocating the Managed Inventory to the other Consignee facilities.
The next part of the contract will address the inventory levels, costs, returning consignment and obsolescence.
Inventory Level Maintenance. Vendor shall use commercially reasonable efforts to maintain Managed Inventory at each Facility at a level at least equal to Consignee’s sell through rate or usage rate during the preceding two weeks. Once per week, Vendor shall advise the Consignee Product Manager in charge of Vendor’s account of the quantity and type of Managed Inventory that should be consigned to each Facility. The Product Manager shall then issue an order to Vendor for the quantity and type of Product to be consigned (a “Stock Order”). Vendor understands and agrees that a Stock Order (even if the order document is entitled or referred to as a “Purchase Order”) is only a request for delivery of consigned Products to Consignee and is not and shall not be deemed to be a commitment to purchase the Products, except as required under this Agreement. Inventory maintenance can also identify who is responsible for checking bins, refilling bins after warehouse has received goods (checked quantity to packing slip) and managing faster or slower moving bins.
True Consignment. To the extent that Vendor delivers the Products to Consignee or places them under Consignee’s control, this is a true consignment agreement. Vendor shall retain title to the Managed Inventory shipped hereunder until the Managed Inventory is purchased by Consignee at the time of use by the Consignee or sale to its customers.
Buyback of Existing Inventory. Following the Effective Date of this Agreement, Consignee shall provide Vendor with a list of Products, if any, held by Consignee in its inventory on the Effective Date (“Pre-Existing Inventory”). Vendor agrees to repurchase within ten (10) days of such list, any Pre-Existing Inventory that Consignee has previously purchased from Vendor. Vendor agrees to repurchase the Pre-Existing Inventory at the price Consignee paid to Vendor. Any Products in Pre-Existing Inventory for which Consignee has not paid Vendor shall automatically become Managed Inventory for purposes of this Agreement, In the event that Consignee decides to consolidate Managed Inventory into on Facility, Vendor agrees to pay for costs associated with picking, packing and shipping Managed Inventory to the desired Facility.
These are just a few areas you should consider documenting for you vendor managed inventory arrangement. If you are interested in the full or our complete version of our sample vendor agreement, it is available in the Premium, Vendor and Mega Packs.