Do’s and Don’ts of How to manage drop-shipments and vendor inventory

Drop-shipping and vendor-managed inventory (VMI) can be a powerful way to streamline fulfillment, reduce carrying costs, and speed up deliveries—especially in the building materials industry, where bulky or specialty items are costly to store and transport.

But these benefits come with risks. Without proper control and ERP visibility, drop-shipments can lead to missed deadlines, order confusion, and poor customer experience.

Here’s a breakdown of do’s and don’ts every distributor should follow when managing drop-shipments and vendor inventory—backed by ERP best practices.

✅ DO: Integrate Drop-Ship Logic into Your ERP

Treat drop-ship orders like a standard workflow—not a workaround.

Why:

You’ll track fulfillment status, lead time, and delivery dates in real time

Sales and operations stay aligned on who’s shipping what

You can automate purchase orders directly from sales orders

Best Practice:

Your ERP should link the sales order to the drop-ship PO and allow live tracking of vendor confirmations and delivery status.

❌ DON’T: Rely on Email Chains to Manage Drop-Shipments

Emails get buried. Spreadsheets get out of sync. When you rely on manual communication with vendors for every order, you invite mistakes.

Common risks:

Duplicate shipments

Missed delivery windows

Inability to answer customer status requests

✅ Instead, use vendor portals or ERP-linked communication tools that create a digital record of confirmations, ship dates, and changes.

✅ DO: Set Clear Vendor SLAs and Lead Times

If vendors are fulfilling your orders directly, you need to hold them to the same standards your customers expect from you.

Include:

Shipment confirmation timelines

Max fulfillment lead times

Packaging and labeling requirements

Return and damage policies

📌 Pro Tip: Store SLA data in your ERP and use dashboards to track performance by vendor.

❌ DON’T: Assume Vendor Inventory Is Always Accurate

Even if your supplier provides visibility into their stock, treat their inventory levels as guidance, not gospel—especially for fast-turnover or specialty SKUs.

Better approach:

Use buffer stock logic for critical SKUs

Confirm availability before promising lead times to the customer

Reconcile vendor stock weekly or through ERP syncs if available

✅ This avoids customer service surprises caused by vendor-side stockouts.

✅ DO: Track Drop-Shipments as Part of Your Fulfillment Metrics

Just because it doesn’t pass through your warehouse doesn’t mean it doesn’t affect your brand.

Your ERP should:

Log delivery dates and shipping method

Track delivery confirmation or proof-of-delivery (POD)

Trigger alerts if drop-shipped items are delayed

📊 Measure drop-ship performance alongside internal fulfillment to get the full picture.

❌ DON’T: Neglect Returns and Reverse Logistics

Returns are trickier with drop-shipments. If your process is vague, customers get frustrated and vendors push back.

Fix it by:

Creating a clear drop-ship return policy

Routing all return requests through your ERP for centralized control

Pre-assigning responsibility for damaged items and return freight

✅ This keeps return costs predictable and customer satisfaction high.

✅ DO: Use Vendor Inventory for Strategic SKUs Only

Not every item should be drop-shipped.

Ideal for:

Large-format or made-to-order items (e.g., fabricated steel)

Low-turnover specialty SKUs

Seasonal or regional products

Don’t overload your VMI strategy with core or fast-moving products—you’ll lose speed and control.

Final Thoughts

Drop-shipments and vendor inventory can extend your reach and cut overhead—but only if managed with clear rules, solid tech, and consistent communication. Your ERP should act as the central source of truth—keeping every order, delivery, and exception visible to your entire team.

📦 Need help tightening up your drop-ship workflows? Let’s map them into your ERP and set up automation that improves reliability, accountability, and customer satisfaction.