Walk through most workshop stores, and a portion of the items on the shelves do not belong to the business. A drum of adhesive delivered on consignment sits alongside a pallet of stainless steel sent in by a customer for their specific job. Both are physically present, both require tracking, and neither forms part of the company’s stock in an accounting sense.
A stock system that assumes all on-hand items are owned will misrepresent stock value, cost, and availability for consignment and free-issue materials. The solution lies in recording ownership at the container level and letting that dictate valuation, availability, and reporting.
Consignment stock: the supplier’s, until you use it
Consignment stock refers to materials owned by a supplier but stored at the buyer’s site. Ownership transfers only when the material is used or consumed. Payments typically occur periodically, such as monthly settlements, where the supplier invoices for the quantity drawn down and replenishes stock to an agreed level.
Common use cases include fasteners, packaging, chemicals, and welding consumables—items purchased frequently and in bulk from a single source. For buyers, this arrangement reduces working capital commitments and ensures availability. Suppliers benefit from secured accounts and reduced order friction.
System requirements for consignment stock
- Ownership tracking at the container level: Containers must be marked as supplier-owned to exclude them from stock valuation, average cost calculations, and FIFO layers. The accounting definition of an asset is “a present economic resource controlled by the entity as a result of past events”, as ACCA’s summary of the Conceptual Framework puts it; consignment stock you have not yet drawn is not a resource you control, so it is not your asset.
- Usage-based costing: When material is issued to a job, the system must record withdrawals at the agreed consignment price. This ensures jobs are accurately costed from the point of use.
- Settlement reconciliation: Accumulated withdrawals should align with the supplier’s invoice, enabling reconciliation without disputes.
VAT implications
HMRC’s VAT Time of Supply manual treats domestic call-off stock arrangements—where the supplier delivers goods on terms that allow the customer to pay for them as and when they are used or consumed—as “no more than a supply on extended credit terms, to which the normal tax point rules apply” (HMRC VATTOS9550). In its words, “tax becomes due at the basic tax point – that is to say at the time of delivery”, not at draw-down, unless the goods are supplied on sale or return, where the customer can return them until they are adopted; then “Section 6(2)(c) of the VAT Act 1994 provides an alternative (delayed) basic tax point”, which “occurs either on adoption or 12 months after removal of the goods where this is earlier”.
For goods moving between Northern Ireland and the EU, VAT Notice 725 (section 15.2) has its own definition: “Call-off stock refers to goods transported by a supplier from a state of origin to a state of destination. These goods will be supplied (called-off) at a later date and after they have arrived in the state of destination.” Specific rules apply there, so agree the invoicing basis with the supplier in writing and take advice where goods cross a border.
Free-issue material: the customer’s, throughout
Free-issue material is owned by the customer and provided to the manufacturer for incorporation into finished goods. Examples include stainless steel for customer-specific brackets, connectors for harnesses, or fabric for upholstery. Ownership remains with the customer at all stages: arrival, consumption, and delivery.
Risks of mismanagement
- Incorrect valuation: If free-issue material is booked into the system with a cost (e.g., the last purchase price of a similar item), it inflates stock value and job costs.
- Misallocation: Picking systems that do not restrict free-issue material to specific customer orders risk sending Customer A’s material into Customer B’s product—a mistake that damages trust and relationships.
System requirements for free-issue material
- Customer ownership tagging: Containers must be marked as customer-owned, with the customer’s name recorded. These items are costed at zero value.
- Availability restrictions: Free-issue material must be invisible to orders outside the owning customer’s account, preventing misallocation.
- Transparent reporting: The system should track received quantities, consumption, and remaining balances for each customer order, enabling accurate returns or shortfall discussions.
Quality standards say the same thing. Clause 8.5.3 of ISO 9001:2015, “Property belonging to customers or external providers”, requires an organisation to “identify, verify, protect and safeguard customers or external provider’s property provided for use or incorporation”, and that property includes “materials, components, tools and equipment, premises, intellectual property (drawings, specifications) and also personal data” (plain-English summary of the clause). Free-issue material falls squarely under it. The 2015 edition has since been replaced by ISO 9001:2026, so check the clause number in the edition you certify against.
The three rules
To maintain clarity in ownership and valuation:
- Ownership is a container-level attribute: The same part number might exist as owned stock, supplier consignment, or customer free-issue simultaneously. Only the container’s ownership status distinguishes them.
- Valuation aligns with ownership: Owned stock is valued; consignment stock is unvalued until withdrawal but carries an agreed price; free-issue material is neither valued nor priced.
- Availability is ownership-bound: Consignment stock is available to any job (as the buyer will pay for usage), while free-issue material is restricted to its owning customer’s orders. Stock counts must separate these categories to reflect reality.
Where to start
Begin by auditing shelves for non-owned stock. If no such items exist, this issue is irrelevant—for now. If consignment or free-issue materials are present, assess how ownership is tracked. Manual methods, such as “the storeman knows,” are unreliable and vulnerable to human error or absence.
A systematic approach is essential. Brytebuild’s MRP and WMS system records ownership at the container level, excludes supplier- and customer-owned stock from valuation, costs consignment withdrawals at agreed prices for settlement, and restricts free-issue material to its owning customer’s orders. See consignment and free-issue in the docs for implementation details.