Supervise Buyer-Owned, Supplier-Held Inventory

Suppliers will often hold inventory that either the seller believes will be purchased by a particular buyer, or has already been purchased. This has a number of advantages for the buying organization providing the terms of the arrangement have been negotiated and documented.

Purchased inventory held by the supplier relieves the buying organization of storing the material when space is limited. However, the buying organization may still be responsible when the supplier holds inventory without an actual paid for purchase. The buyer should make it perfectly clear that any inventory intended for the buyer must be authorized in advance.

The buyer’s inventory held by the supplier must be protected and insured. A statement of this fact needs to be conveyed to the seller and acknowledged in a signed document.

The buying organization should have physical access to the inventory for inspection at almost anytime during business hours. The buyer or a delegated employee should visit the supplier to verify the presence of the product, the count, and its proper storage.

The agreement to hold inventory should indicate the length of time it will be held and the disposition of the product when that period has expired. Arrangement for a storage fee per square feet used or some other measurement may be considered. The document should clearly indicate when no storage fee is to be accepted.

Any buyer-owned product held by the supplier should be available for immediate delivery.

The seller should be required to notify the buyer promptly of any damage or loss of buyer purchased material including the causes for such loss.

The negotiation may stipulate that inventory for the buyer’s use should not be invoiced until some or all is actually delivered to the buying organization for its use. This reduces the buyer’s cost of holding inventory and can favorably affect the accounting statements.