Meaning
Inventory management strategies involve placing goods in a buyer’s warehouse while the seller retains legal ownership until the buyer actually uses the items. Under a call-off stock agreement, the purchaser can withdraw products as needed for immediate production or retail distribution, triggered by a pre-arranged consumption notice. This arrangement lowers storage fees for the buyer and creates a predictable demand cycle for the supplier.
Storage Responsibility
Physical custody remains with the buyer, who must maintain the items in a saleable condition within their own facility. This obligation requires the buyer to insure the goods against damage and theft. If the items deteriorate due to poor handling, the buyer remains liable for the full purchase price.
Financial Settlement
Title transfer occurs automatically at the moment of withdrawal, which initiates the billing cycle. The supplier receives a digital notification that specifies the quantity and unit price of the withdrawn inventory. Payment terms begin immediately upon this notification.
Operational Risk
Demand fluctuations are buffered because the materials are already on-site, which removes shipping delays from the production workflow. However, if the buyer’s business declines, the supplier’s capital remains tied up in unsold goods sitting in a distant warehouse. This scenario can create cash flow pressure for the supplier.
