Stop Overstocking Consignment: Usage-Based Min/Max That Pays
By Rock Rockwell, CEO of eTurns
For distributors, offering consignment inventory management can fuel growth (or quietly bleed cash).
Let’s be honest: most consignment programs are bloated because they’re run on gut feel and past orders instead of actual point-of-use usage. That ties up your cash, increases your shrink, and drags your turns. First, you need to ensure that you can offer it efficiently.
Shift to usage-based min/max at the point of use and you’ll cut days of supply without denting service.
Here’s the fix.
Why consigned stock gets fat
When you own the inventory until the customer uses it, the natural instinct is to over-protect service levels. Without clean consumption data at the point of use (bin, room, truck), you pad par levels “just in case.” The result is a creeping safety buffer that becomes a permanent cushion on your balance sheet. Academic work even shows consignment programs can increase shrink and overall spend when controls are weak. That’s not my opinion—that’s peer-reviewed evidence.
The data problem is real. A widely cited global study found 58% of brands have less than 80% inventory accuracy. If your source data is off, your consignment min/max is off. Full stop.
And the broader market signal? Excess stock remains stubborn for many firms: one benchmark report pegged excess stock at ~38% of SMB inventory in 2024. If you’re running consignment on top of that, the carrying-cost math gets ugly fast.
"The Min/Max Tuning dashboard has been critical for us in identifying areas for optimization for us and our customers. We're able to maintain inventory levels much more efficiently since we have a dedicated tool to better analyze usage trends and reduce inventory/stockouts/carrying costs."
Why Consignment Inventory Feels Risky But Doesn’t Have to Be
Consignment inventory can feel like a financial gamble. You’re putting thousands or hundreds of thousands of dollars in product on customer shelves, without immediate payment.
The most common fears are it won’t move, won’t be tracked accurately, or won’t be billed on time. Worse, many distributors overstock to “be safe,” tying up cash in slow-moving items that gather dust instead of driving revenue.
But the real problem isn’t consignment; it’s a lack of usage visibility.
Most enterprise resource planning (ERP) systems weren’t built to track consumption at the point-of-use. They show what was shipped, but not what was taken from the bin, consumed on a job, or left untouched for months.
This blind spot leads to:
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Bloated customer stockrooms
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Delayed billing or lost revenue
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Wasted inventory sitting in limbo
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Poor ROI on your most valuable accounts
This means you avoid scaling consignment, even though it’s one of the strongest tools for customer loyalty and account growth.
“But our ERP handles it.” No, it doesn’t.
ERPs rarely capture point-of-use consumption. ERPs reorder from order history, which is not the same thing as what end users actually pull and use. In volatile demand environments, that gap creates forecast error and amplifies overstock. The right way is to replenish from usage captured at the edge, not from the ghost of last quarter’s PO. (I wrote about this exact pitfall for Industrial Distribution.)
Healthcare supply studies make the same point: inaccurate POU records drive higher costs and service risk—because you’re planning off fiction. Replace “surgery room” with “job site” and the math is identical.
What “right-sized” consignment looks like
Lean consignment is boring in the best way: steady fill rates, fewer days of supply, better turns. With modern distributor operations in warehouses, you should expect 20–30% inventory reduction when you bring real data and simple optimization to the problem, according to McKinsey & Company.
As for optimizing inventory onsite in customer stockrooms, we did our own internal polling and found that most stockrooms are stocking up to 75% more inventory than they need. This was the case for both consigned and customer-owned stockrooms.
And remember: the cost of holding too much is rising (financing, space, labor). So every unnecessary day of supply hurts more now than it did three years ago.
The Fix: Track Usage At POU, Then Tune Min/Max
Here’s the practical stack that works:
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Capture actual pulls
Scan a QR/barcode when a tech or nurse takes a part. That decrement hits quantity-on-hand immediately. No more guessing. -
Tune min/max by SKU and location
Use the last 45–60 days of usage plus lead time and service targets to set the minimum (demand during lead time + safety stock). Set the maximum to cover the review/order cycle so you’re not restocking every other day. Our customers run min/max optimization continuously and stop arguing about “feel.” -
Replenish only when the min is hit
That’s your signal. No ad-hoc “top-offs,” no wandering carts building inventory mountains.
Audit the outliers
Slow-movers, expired items, and returns tell you where shrink and slippage are hiding. Yes, consignment can raise shrink without controls—so build the controls.
“Usage-based min/max beats padded par levels—every time.”
What eTurns TrackStock does differently to manage POU consignment
We built eTurns TrackStock around the reality of consignment in the field:
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Usage at the edge: Mobile scanning app “pulls,” cycle counts, and orders captured where work actually happens—stockrooms, trucks, clinics, jobsites.
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Min/Max Tuning Dashboard: We calculate optimal min/max by SKU/location from tracked consumption and lead times. The dashboard shows potential one-time inventory reduction and annual carrying-cost savings from moving to optimized levels.
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Reality check on overstock: In live data, we routinely see consigned sites running way too hot—our own analysis often flags up to 75% excess versus an optimized target. If you see that number on your TrackStock Dashboard, it’s not a bug; it’s what your usage is telling you.
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Auto-replenishment: When min is hit, let the app approve the suggested order on a schedule. Stop “driving by” to guess what needs topping up.
Partial screenshot of TrackStock Min-Max Tuning Dashboard
A 60-day plan to pull cash off the shelf
- Days 0–15 — Pick 2–3 consigned accounts. Tag the top 20% SKUs by value. Turn on pulls and weekly cycle counts so the data gets clean, fast.
- Days 16–30 — Turn on Min/Max Tuning. Lock in service targets and lead times. Start replenishing only on min-hit.
- Days 31–60 — Expand to the next 50–100 SKUs. Track days of supply, turns, and stockouts. If stockouts rise, adjust safety stock—not your gut.
Partial screenshot of TrackStock Min-Max Tuning Dashboard
Parallel move for extra credit points: push point-of-use usage upstream into DC planning so you also reduce the inventory you’re carrying for replenishment.
Pushback I hear—and the straight answers
- “We can’t risk stockouts.” Neither can I. That’s why we size to actual demand during lead time with a safety stock tuned to your service goal. Blind padding is what causes the overhang and still doesn’t guarantee service.
- “Our ERP is fine.” ERPs manage orders. They don’t know what was used in a customer’s room yesterday at 10:12am. Without point-of-use data, it’s guesswork.
- “Consignment is working.” Show me your shrink, expired write-offs, and inventory turns. Industry indicators still show lingering excess inventory; if your numbers rhyme with those, you’re leaving cash on the shelf.
The punchline
If you don’t measure usage at the point-of-use, you will overstock consignment. The market data says accuracy is shaky for most companies; the research says consignment without controls boosts shrink and spend; and the benchmarks say excess stock is still too high across the board. You don’t need a transformation program. You need clean usage capture and min/max tuned to reality. That’s what TrackStock is built to do.
Want proof in your world? Give me 30–60 days on one consigned account. Turn on pulls, turn on Min/Max Tuning, and let the math tell us how much cash you can pull off the shelf—without denting service.
