Final answer:
Consignment arrangements complicate inventory management as they require keeping accurate records of goods that are not owned by the consignee but are kept at their location, and also introduce uncertainty in inventory tracking and decision-making due to the consignment's conditional sale nature.
Step-by-step explanation:
Consignment arrangements present several challenges in inventory management. When goods are sent on consignment, they remain the property of the sender until they are sold by the consignee. This creates complexities in tracking and valuing inventory because the unsold goods may be physically held at the consignee's location but are not owned by them. Accurate record-keeping is crucial to ensure that the inventory on hand and the inventory recorded in the financial statements are consistent.
Moreover, consignment can lead to a lack of clear, timely information about the status of the inventory, making it difficult to react to stock needs and demand changes. This uncertainty can complicate decision-making about production and purchasing for the consignor.