Consignment Stock Control Criteria under International Financial Reporting Standards
Consignment stock remains on the supplier balance sheet until downstream control transfers through verified consumption or resale under IFRS 15 criteria.
Call off Mechanism
Meaning
Procurement procedures defined in a framework agreement establish the specific rules under which a buyer can demand individual shipments of goods or services from a pre-arranged master supply contract. A call off mechanism prevents a buyer from being exposed to spot price fluctuations while avoiding the storage costs of receiving the entire committed volume at once. Distribution networks utilize these provisions to synchronize manufacturing schedules with actual downstream market demand.
Requisition Protocol
The buyer initiates a request for a specific quantity against the total contracted amount by issuing a purchase order under predetermined lead times. This call off mechanism specifies the minimal and maximal release volumes for each delivery cycle to prevent chaotic demand spikes. Suppliers use these schedules to plan their raw material orders and allocate production capacity across their client base.
Price Protection
Procurement agreements specify fixed unit rates or tiered pricing structures that apply to all releases during the life of the contract. The pre-determined call off mechanism ensures that despite fluctuating logistics or raw material expenses, the buyer secures predictable landed costs. Long term contracts often lock in these prices to protect both margins and distribution channel stability.
Delivery Window
Shipping timelines must align with warehouse capacity to ensure efficient product flow. When a release is triggered, the seller faces penalties if the goods do not arrive within the contracted window. The call off mechanism defines the exact boundary where late delivery constitutes a breach of the broader framework agreement.