VMI vs Consignment: Which Makes Sense for Your Yard?

TL;DR

Use consignment when capital cost matters more than data. Use VMI when data matters more than capital. Run both when you have multiple yards and one of them is your high-volume hub.

The short version

Consignment keeps inventory on the supplier's books until you pull a part. You pay only on consumption. The supplier counts and replenishes.

VMI (vendor-managed inventory) puts inventory on your books, but the supplier's software runs the reorder logic, watches consumption velocity, and triggers replenishment automatically.

Both reduce stockouts. They differ in three places: who owns the parts, who counts them, and how billing flows.

Who owns the inventory

• Consignment: Supplier. Title transfers at scan-out. Your balance sheet is lighter; capital is freed up for other uses.
• VMI: You. Parts are bought at the time of the replenishment delivery, just like a normal PO — software just decides when.

If your CFO is pushing on inventory carry, consignment wins on day one. If you're already comfortable carrying inventory and want better turn data, VMI is cleaner.

Who counts and replenishes

• Consignment: Supplier counts physically, on a fixed cadence (we run weekly). Replenishment is triggered by the count, not by consumption events. This catches drift.
• VMI: Software counts via scan-in / scan-out events. Replenishment is event-driven. Faster, but if scans are missed, drift accumulates until somebody physically audits.

Practically: consignment trades a few cents on the dollar for fewer surprises. VMI trades audit precision for speed.

How billing flows

• Consignment: Weekly invoice for what came off the shelf. AFE and rig codes captured at scan-out, so cost coding is automatic.
• VMI: Standard PO at replenishment, plus a software/service fee. Coding usually happens at the delivery line level.

Decision framework

Run consignment if any of these are true:

• Inventory carry is a board-level conversation
• You have <4 yards and want hands-on field support
• Your accounting team needs strict AFE/rig matching

Run VMI if any of these are true:

• You're already comfortable with the carry
• You have software preferences (ERP integration, custom dashboards)
• Your team prefers event-driven data over scheduled counts

Run both if you have a hub yard plus satellite locations. The hub gets VMI for software-driven turn data; the satellites get consignment so you don't have to staff up the count.

What we won't do

We won't sell you VMI software and walk away. Both programs include a quarterly business review where we look at consumption patterns, dead stock, and SKU additions. If the program isn't paying for itself, we'd rather hear about it than discover it later.