Drop-shipments and vendor-managed inventory (VMI) offer efficiency and flexibility — especially for building material distributors handling large, custom, or irregular SKUs. But with that flexibility comes complexity. Without the right KPIs (Key Performance Indicators), it’s hard to spot delays, hidden costs, or fulfillment gaps before they affect your bottom line.
Here’s a breakdown of the most important KPIs to track when managing drop-ships and VMI across multi-location operations.
Why Tracking Is Crucial for Drop-Shipments & VMI
When you don’t store the product in your own warehouse, you lose direct control — which makes visibility and accountability even more critical.
Drop-shipments can:
Reduce carrying costs
Increase fulfillment speed for large or specialty items
Free up yard space for high-turnover stock
Vendor-managed inventory can:
Automate restocking of critical SKUs
Improve supplier relationships
Reduce the risk of stockouts
But both require strong data visibility to avoid service issues, missed deliveries, or cost overruns.
Top KPIs to Track for Drop-Shipments
- On-Time Vendor Fulfillment Rate
Tracks how often your vendors ship drop-ship orders on or before the promised date.
✅ Target: 95% or higher
Why it matters: Delays directly affect your customer’s jobsite and reflect on your reliability.
- Average Drop-Ship Delivery Time
The number of days from order placement to delivery.
✅ Helps compare vendors and identify underperformers.
Pro tip: Set vendor-specific benchmarks in your ERP and get alerts for exceptions.
- Drop-Ship Order Accuracy
Percentage of drop-ship orders delivered without errors in quantity, SKU, or condition.
✅ Affects customer satisfaction and return volume.
Use return data and customer feedback to track this in tandem with ERP-integrated delivery confirmations.
- Cost Per Drop-Ship Order
Tracks logistics and handling costs, especially for LTL or oversized items.
✅ Helps evaluate whether drop-ship is saving or costing more than stocking.
Use your ERP to compare against in-house fulfillment for similar SKUs.
Top KPIs to Track for Vendor-Managed Inventory (VMI)
- Stock Availability Rate (Shelf Fill Rate)
Percentage of time VMI SKUs are in stock at your location.
✅ Low fill rates = higher risk of lost sales.
Your ERP should sync with vendor dashboards to alert when stock dips below threshold.
- Reorder Accuracy
Tracks how often the vendor replenishes the correct quantity at the right time.
✅ Helps you spot inventory drift or supplier misalignment.
Review alongside demand forecasting accuracy for those SKUs.
- VMI SKU Performance
Evaluate turnover rate, aging stock, and gross margin by vendor-managed SKU.
✅ Helps decide which products to continue under VMI or move in-house.
This KPI ensures VMI isn’t just easy — it’s also profitable.
- Vendor Response Time
How quickly vendors act on stock alerts or fill restock orders.
✅ Important when operating in fast-paced project environments with just-in-time needs.
Document in ERP logs and vendor scorecards for quarterly reviews.
Bonus KPI: Dispute Resolution Time
For both drop-shipments and VMI, issues will arise. Track how quickly order problems — like delivery errors, damaged goods, or quantity mismatches — are resolved by the vendor.
Faster resolution = better customer experience and fewer lost hours internally.
How ERP Systems Support KPI Tracking
ERP software built for building material distributors can:
Automatically log drop-ship and VMI transactions
Match order and fulfillment data from vendor portals
Alert teams when KPIs fall below thresholds
Support vendor performance dashboards for smarter procurement
When KPIs are baked into your system — not tracked on spreadsheets — accountability and speed both improve.
Final Thoughts
Drop-shipments and vendor-managed inventory can be powerful tools for scaling operations without bloating warehouse space. But to make them work long-term, you need real-time visibility and clear performance tracking.
With the right KPIs in place — and the right ERP to support them — you stay in control even when the stock isn’t in your hands.
