Managing drop-shipments and vendor-managed inventory (VMI) can unlock significant supply chain advantages for building materials distributors — like reduced warehousing costs, faster fulfillment for special orders, and leaner inventory at local yards. But without the right systems and processes, these models often lead to visibility gaps, errors, and customer service breakdowns.
Improving how you manage these supplier-driven models requires a smart mix of ERP integration, workflow discipline, and performance accountability. Here’s how to take control and scale your vendor fulfillment strategies with confidence.
The Challenge: You Don’t Own It, But You’re Still Accountable
Distributors often carry the customer-facing risk — even when the product never touches their warehouse.
Common issues:
Delayed or missed drop-ship deliveries
VMI stockouts that catch your team off guard
Manual tracking of vendor orders across disconnected tools
Inaccurate inventory records in the ERP
Limited visibility into order or delivery status
These issues lead to lost sales, frustrated customers, and strained vendor relationships.
- Centralize All Vendor Orders in Your ERP
Problem: Drop-ship POs often live in spreadsheets or inboxes, disconnected from your system of record.
Solution:
Create a dedicated vendor order workflow in your ERP
Link drop-ship POs directly to customer sales orders
Require vendors to confirm shipment details electronically
Sync vendor confirmations and delivery status into the ERP in real-time
Result: You gain end-to-end visibility — even when the goods never enter your warehouse.
- Flag and Separate VMI Stock in Your System
Problem: Vendor-managed items are often stored at your yard but not owned by you — creating accounting and fulfillment confusion.
Solution:
Tag VMI SKUs and bins in the ERP as vendor-owned
Prevent stock from being picked until released or billed
Track consumption events that trigger replenishment
Run aging and usage reports for vendor audits
Result: Cleaner inventory records, fewer billing issues, and stronger vendor trust.
- Automate Alerts for Vendor Fulfillment Failures
Problem: Teams often don’t realize there’s a problem until the customer asks, “Where’s my order?”
Solution:
Set automated ERP alerts for unconfirmed drop-shipments after 24–48 hours
Flag stale VMI SKUs with no movement for review
Use dashboards to track open vendor orders by aging or risk level
Result: Proactive management, not firefighting.
- Create Vendor Scorecards Tied to ERP Data
Problem: It’s hard to hold vendors accountable without metrics.
Solution: Track and share KPIs like:
On-time delivery rate (drop-ship and VMI)
Fulfillment accuracy (% SKU match)
Communication response time
Issue resolution time
Replenishment frequency vs. ideal levels
Result: Use data to improve performance — or make better sourcing decisions.
- Align Internal Teams on Process and Responsibility
Problem: Who owns what? Purchasing, sales, warehouse, and customer service teams often operate with different assumptions.
Solution:
Define clear SOPs for vendor orders and fulfillment
Document handoff points and escalation paths
Train sales and service teams to check ERP order status — not email chains
Use automated order status updates to reduce manual tracking
Result: Fewer dropped balls, faster customer responses.
- Set Smart Inventory Rules for VMI vs. In-House Stock
Problem: Overlapping stock policies cause double ordering or missed restocks.
Solution:
Assign SKUs to either vendor- or distributor-managed logic — not both
Use real-time consumption data to trigger VMI restocks
Let your ERP manage reorder points and safety stock per ownership model
Result: Leaner inventory with fewer surprises.
Final Thoughts
Drop-shipping and VMI can reduce inventory carrying costs and expand product availability — but only when managed with precision. With a well-configured ERP system and consistent cross-team execution, you can treat vendor-managed fulfillment like an extension of your own operation — not a black box.
More control. More confidence. Fewer excuses.
