Consignment Inventory: How Hospitals Get Supply Certainty Without the Capital

The quiet problem in every hospital store room

Every hospital carries stock it has paid for but not yet used. For low-value items that hardly matters. For orthopedic implants, coronary stents and other high-value consumables it matters a great deal. Money leaves the budget months before the item touches a patient, and if the item expires on the shelf first, that money never comes back at all. Procurement is asked to guarantee availability for procedures nobody can schedule precisely, and finance is asked to fund that guarantee out of working capital. Consignment inventory exists to break this trade-off.

How the model works

Under a consignment agreement, the supplier places an agreed range of stock inside the hospital, on your shelves, ready for immediate clinical use. Ownership stays with the supplier. Payment falls due only when an item is used for a patient, not when it is delivered. The supplier monitors the stock, replenishes what has been consumed and rotates anything approaching its expiry date.

This is the model we run at Medtech. Essential supplies are held on-site at no upfront cost, our team monitors and replenishes them, and the hospital pays only for the products it uses. The service is described in full on our consignment inventory page.

The cash flow case

The financial logic is simple, and it compounds.

First, cost follows activity. Under a purchase order model, the hospital pays for a shelf of implants whether or not the cases arrive. Under consignment, spend tracks actual procedures, so the cost of a device lands in the same period as the case it served. That makes departmental budgets easier to read and easier to defend.

Second, working capital stays free. High-value stock on a purchased shelf is capital doing nothing. Moving that inventory to consignment releases it for staffing, equipment or simple liquidity, without reducing what is clinically available. The devices are still there. The money is no longer locked inside them.

Third, purchasing overhead falls. There are no bulk orders to time, no year-end stock builds, and no negotiations over quantities that are really guesses about next year's case mix.

The expiry case

Sterile implants and consumables have finite shelf lives. Under outright purchase, expiry risk sits entirely with the hospital: an implant that dates out is a full write-off, and someone has to notice it before it is opened for a patient. Under consignment, the supplier has every incentive to manage dating actively, because unexpired stock remains the supplier's asset. Slow-moving items are rotated to sites where they will be used, items approaching expiry are swapped out, and automated alerts replace manual shelf checks. Waste falls, and so does the audit burden of proving that it fell.

Where consignment fits best

Consignment earns its keep where three conditions coincide: high unit value, unpredictable item-level demand, and wide size or configuration ranges.

Orthopedic implants are the textbook case. A hip or knee system is a matrix of sizes, and the patient on the table decides which combination is needed. No hospital wants to own the full matrix, but every surgeon needs the full matrix available. Consignment implant stock, supported by loaner instrumentation delivered ahead of the case, is how joint replacement programmes run reliably, and it is the service model our orthopedic portfolio is built around.

The same logic covers trauma implants, spinal systems, cardiovascular devices and any high-value consumable where a stock-out means a cancelled procedure rather than an inconvenience.

At the other end of the scale, predictable, fast-moving, low-value consumables are usually fine on a standard purchase order. Consignment is a precision tool, not a religion, and a good supplier will tell you which of your product lines do not need it.

Replenishment discipline makes or breaks the model

A consignment programme is only as good as its data, and the discipline is straightforward. Every item is recorded at the point of use. Usage draws stock down against an agreed par level. Crossing the par level triggers replenishment automatically, without a manual purchase requisition. Recording at the moment of use also protects both sides commercially, because it ties every invoice to a specific patient case, which makes billing disputes rare and audits short.

Technology strengthens the discipline further. In one peer-reviewed hospital implementation, RFID-controlled storage for high-cost supplies recorded zero stock-outs, zero stock mismatches, complete assignment of products to patients, and a significant reduction in administrative time for nursing staff. We offer RFID tracking of supplies and equipment as part of our service portfolio for hospitals that want that level of control over consigned stock.

When consignment beats a purchase order

Ask five questions about any product line:

• Is the unit value high enough that shelf capital hurts?
• Is item-level demand unpredictable, even when total volume is stable?
• Does the product come in a size or configuration matrix?
• Does shelf life create real write-off risk?
• Would a stock-out cancel or delay a procedure?

Three or more yes answers, and consignment will normally beat outright purchase. One honest caveat belongs in the analysis: industry literature notes that per-item pricing under consignment can sit higher than bulk purchase, reflecting the inventory management work the supplier takes on. The comparison that matters is total cost, with capital tied up, expiry write-offs, stock-out cancellations and administrative hours all included, not unit price alone.

Supply certainty is the point

The deepest benefit is the one that never appears on an invoice: the procedure goes ahead. The size is on the shelf, in date, recorded and replaced. Clinicians stop worrying about availability, procurement stops firefighting urgent orders, and finance stops funding stock that may never be used. That is what a hospital is really buying with consignment, certainty without the capital cost that used to come with it.

Contact our team to discuss a consignment arrangement sized to your hospital's case mix.