Vendor-managed inventory (VMI) is a strategic approach to supply chain management that allows building material manufacturers and distributors to take direct responsibility for maintaining inventory levels at a customer’s site. While VMI improves availability and reduces stockouts, it can become costly if not properly managed.
The challenge in 2025? Lowering costs in VMI programs without sacrificing service reliability or material quality. Here’s how suppliers in the construction materials space can reduce overhead and improve efficiency in their VMI programs—while continuing to meet contractor expectations and project demands.
- Use Real-Time Data to Drive Smarter Replenishment
The cost problem:
Outdated forecasting or lagging inventory data leads to overstocking and higher carrying costs.
The solution:
Integrate real-time usage and demand data from the job site or distributor
Connect VMI systems with ERP or sales order platforms to align replenishment with actual consumption
Use predictive analytics for seasonal and project-based demand fluctuations
Result: Fewer unnecessary shipments and reduced holding costs—without risking stockouts.
- Optimize Delivery Frequency and Load Consolidation
The cost problem:
Too many low-volume deliveries drive up transportation costs and reduce logistics efficiency.
The solution:
Group VMI replenishment into larger, less frequent deliveries
Use routing and load planning tools to maximize truck capacity
Align delivery schedules with contractor project timelines
Benefit: Reduced fuel, labor, and mileage costs—while still meeting inventory requirements on time.
- Automate Inventory Monitoring and Ordering Workflows
The cost problem:
Manual tracking and reorder processes add labor overhead and increase error risk.
The solution:
Use IoT-enabled bins, barcode scans, or RFID tagging to monitor inventory levels automatically
Set reorder thresholds and alerts to trigger replenishment without human intervention
Ensure automatic orders are reviewed through exception management—not manual entry
Outcome: Lower admin costs and better accuracy, with less time spent on repetitive VMI tasks.
- Implement Tiered Service Levels Based on Project Criticality
The cost problem:
Providing the same level of service across all customers—regardless of job size or urgency—wastes resources.
The solution:
Categorize VMI customers based on volume, location, and project criticality
Offer differentiated service tiers with varying replenishment speeds and frequency
Focus higher-touch service on high-impact or high-risk accounts
Result: Resource allocation that matches value—without compromising key contractor needs.
- Streamline Product Assortments and SKU Rationalization
The cost problem:
Managing too many slow-moving SKUs increases carrying costs and complicates replenishment.
The solution:
Work with contractors to review inventory usage and eliminate low-turn items
Standardize materials across job types or customer segments where possible
Consolidate similar products into fewer SKUs with broader applications
Benefit: Lower inventory overhead and reduced complexity—while maintaining essential material coverage.
- Use Vendor Scorecards and Shared KPIs
The cost problem:
Without shared accountability, it’s difficult to improve VMI efficiency or ensure quality.
The solution:
Track KPIs like stockout rate, inventory turns, on-time replenishment, and shrinkage
Share performance dashboards between vendors and customers
Hold regular reviews to identify cost-saving opportunities without reducing material quality
Result: Continuous improvement through collaboration and mutual visibility.
- Leverage Regional Warehousing and Cross-Docking
The cost problem:
Shipping direct from manufacturers to every VMI location increases cost and transit time.
The solution:
Stage replenishment inventory at regional distribution centers or cross-docks
Use pooled deliveries to supply multiple VMI sites from a central hub
Shorten lead times while reducing long-haul transportation expenses
Impact: Faster, more cost-effective replenishment without cutting service levels.
- Train Field Reps and Site Teams in Inventory Accuracy
The cost problem:
Incorrect counts and poor site-level practices lead to emergency restocks and excess inventory.
The solution:
Train site personnel on basic VMI principles and bin labeling
Equip reps with mobile apps to verify levels and document variances
Conduct regular audits to validate counts and identify process gaps
Benefit: Improved data accuracy without adding new labor costs—protecting both cost and quality.
Final Thoughts
Vendor-managed inventory is a powerful tool in the building supply chain, but without cost control, it can quickly become inefficient. By applying data-driven processes, automating replenishment, and aligning service levels with project needs, you can reduce the operational cost of VMI without compromising on reliability, accuracy, or material quality.
In 2025, the distributors who win with VMI will be those who treat it not just as a service—but as a scalable, optimized partnership strategy.
