Consignment consists in storing items owned by a vendor in a warehouse of a customer who collects them and sells them before they have made a formal purchase and settlement with a vendor. Consignment is most commonly used in franchise networks.

In the system, there are two types of consignment warehouses:

• own consignment warehouse – a warehouse physically owned by a customer, in which items owned by a vendor are stored and which are disposed of and sold by a customer
• customer’s consignment warehouse – a warehouse physically owned by a secondary customer, where items of a vendor or a customer are stored, which are managed by the secondary customer; the items can be owned by a vendor who is located several levels higher; when looking from the perspective of a secondary customer, a customer becomes a vendor and a secondary customer becomes a customer. In the customer’s system it is a virtual warehouse which is used only for determining that the items have been transported to a customer’s warehouse; a customer does not record in its system each sales transaction made by a secondary customer – a customer can only issue a sales document to a secondary customer to whom the warehouse is assigned, after prior receiving a special report from it.

Items delivered by a vendor are owned by this vendor, whereas a customer is responsible for their proper storage.

Payment for the items is made after the resource has been depleted (in the case of production) or sold out (in the case of trade).