In addition to Diana's post, below are a few options (using Dynamics AX 2012 terminology):
Option 1: Negative physical inventory.
Create a warehouse called consignment, and receive initial stock in there at zero value (movement journal).
Create an item model group for consignment items that allows negative physical inventory.
Don’t set any min-max levels in consignment warehouse.
Use item coverage type requirement in main warehouse.
Upon requirement, issue items from main warehouse and stock will go below zero. This will trigger a PO to the main warehouse.
Physically take the items from consignment. Run a periodic stock count in consignment to adjust stock levels up/down.
When the PO is received, physically put the replacement in consignment, but receive in main warehouse. Stock is now back to zero.
When the invoice is received, process as normal.
Run recalculation after invoice always for the cost to flow.
Downsides:
Manual adjustment of consignment, no master planning.
The PO is meant for the replacement but the invoice is meant for the item used. These should not belong to the same PO in the eyes of auditors.
Master planning will not suggest transfers.
Option 2: Simplified PO receipts.
Create an item model group that will not post physical inventory and call it consignment.
Item model group will have physical value included in item cost.
Can create a consignment warehouse.
(Alternatively, create a consignment location only and make it the default receipt location. This way you'll have to override this setting every time you purchase the same item for stock).
Can have a trade agreement for all other warehouse, but not consignment, with prices (as cannot have zero prices on trade agreements, but can have them on item).
Have a min/max policy in consignment warehouse with min=max.
Create a PO pool called consignment to separate consignment POs from all other types.
Raise POs for all existing consignment quantities for zero value.
Register receipt these POs in consignment (item arrival journal or receipt list from the PO).
When an item is required, create a product receipt of that item quantity only into the main warehouse (override registered quantity) and post the items.
When the invoice comes in match it with the product receipt in the main warehouse.
Run recalculation after invoice for the cost to flow.
Master planning will kick in and reorder for consignment. When items arrive, register them and repeat cycle.
Downsides:
Leaves open POs for a long time, however they will have zero value. Accountants do not like that especially towards end of periods.
Not posting physical inventory will back fire on POs ordered straight to the main warehouse. Have to wait for invoice to realise cost.
Can work around the above by enforcing zero value in consignment warehouse and ticking post physical inventory. This is a matter of process discipline rather than system enforcement.
Will have to tweak inventory valuation reports unless physical value is not part of cost calculation (item model group).
Option 3: Service items.
Consignment item will have zero value always, no trade agreements.
Item coverage will be min/max in consignment (min=max) and requirement in main warehouse with refill from consignment via transfer orders.
Create a service item called consignment stock (or many service items if you like).
When the item is reqwuire, master planning will suggest you transfer from consignment and reorder replacement. Firm the two orders.
Receive replacement at zero value (and invoice at zero value too).
Manually raise a PO for the service item to the vendor, when the invoice comes in, receive the PO and invoice match it, then post it to the same destination you posted the item to (project, sales order, production order etc.).
Downsides:
The cost of the item will only be known if the item is ordered for main stock. In all other cases it will be zero in all warehouses and all projects/sales orders/production orders.
Manual control, but this is across the board for all solutions.
Still have a couple of suggestions up my sleeve, but would like to hear feedback on these first.