Meaning
Supply chain relationship structures allow suppliers to retain ownership of their products at the retail location until those products are scanned and purchased at the point of sale. Under scan based trading, the retailer does not pay for the inventory when it is delivered to the store, but rather when it is purchased by the consumer. This model eliminates the retailer’s upfront holding costs and encourages them to allocate premium shelf space to the supplier’s products.
Consignment Dynamics
Wholesalers are responsible for managing stock levels and optimizing product displays at the retail partner’s stores. Implementing scan based trading shifts the financial burden of unsold inventory entirely onto the supplier. This structure forces suppliers to use advanced forecasting tools to avoid overstocking or stockouts.
Shrinkage Risk
Retail agreements must specify who bears the cost of lost, stolen, or damaged products that are not recorded at the register. Under scan based trading, the supplier is often responsible for these losses, though contracts can include shared-risk limits to ensure the retailer maintains basic security measures. This allocation of liability is a frequent point of negotiation in retail distribution agreements.
Cash Flow Optimization
Retailers improve their working capital efficiency because they only pay for goods after they have collected cash from the customer. This benefit of scan based trading allows retail chains to expand their product offerings without increasing their inventory budgets. Suppliers accept this arrangement to secure market entry and build direct relationships with major retail chains.
