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When you know a product is out-of-stock and costing lost sales, you can do something about it. But what if you do not know that a product is not available for consumers who want to purchase it?

That is exactly what phantom inventory is: when a product is not reported as out-of-stock because the stores’ systems register that they have on-hand inventory, but in reality the product is not available. In other words, the recorded inventory is like a phantom — it does not really exist on the shelf.

As a result, brands and retailers often do not even know lost sales are happening. And that is scary and costly. When you run a big organization and you do not know the exact whereabouts of inventory and assets, you have a big problem.

What is Phantom Inventory?

Phantom inventory refers to goods that are recorded as available on-hand at a storage location but that are not actually present. In other words, it is inventory that appears available in the database but — due to human error or theft — cannot be found in its intended location.

This phenomenon poses a serious logistics issue. The disparity between the number of goods physically present in a store or warehouse and that recorded in the computer system can lead to major losses for a company. This discrepancy between the recorded and real stock means that a business might accept orders that cannot be delivered to customers because of a lack of product. By going to pick the items, the operator realizes there is not enough merchandise and alerts the Warehouse Manager. There could also be problems with the supply of raw materials for the production lines, which could eventually halt the manufacture of a product.

Since phantom inventory never generates sales, Store Managers and Buyers may conclude the product is not selling well and decide against reordering or even carrying the SKU in the future. The reported inventory level is essentially a figment of the imagination, hence the “phantom” moniker.

What Causes Phantom Inventory?

While retail technology has been steadily improved over the last decades, many factors still contribute to generate inventory record inaccuracies including:

  • Replenishment Errors
  • Employee Theft
  • Customer Shoplifting
  • Improper Handling of Damaged Merchandise
  • Imperfect Inventory Audits
  • Incorrect Recording of Sales

How to Detect Phantom Inventory

How can you detect stock conflicts when you are manually running reports on a huge number of information data every day? You have poor item visibility on the grounds!  The challenges associated with phantom inventory increase with scale. The more SKUs you have, and the harder it is to identify and prevent phantom inventory. 

Ghost stock examination, at any scale, requires an all the more dominant retail skilled and intelligent tool that can rapidly work through your information data. Indicating for you call attention to patterns and inconsistencies so they can be treated in a convenient way.  

Therefore, the best solutions to this problem involve retail analytics and software solutions. You need someone physically inside stores checking on-shelf availability, and then you need more help to compare that data against perpetual inventory to identify any phantom inventory.  

One such solution is mobile crowdsourcing. Smartphone-enabled shoppers can provide images from the shelves along with data on inventory levels, so you can quickly and easily see shelf conditions. These images provide crucial data with clear evidence of a problem at the shelf-level. Once you have that evidence, you can work backward to identify the cause of the phantom inventory and prevent it from happening again in the future. 

How Phantom Inventory Hurts Retailers

Phantom inventory is a problem for retailers because it generates zero dollars in sales and can delay automated reordering. It is inventory that you believe is on the shelf but does not exist, which means nobody can buy it. When an automated replenishment system is in place, the only way to get the system out of an inventory freeze is a manual recount of the stock on hand.

But understand that phantom inventory creates more issues beyond lost revenue. The unknown nature of this type of inventory can also impact your account books if you are declaring more assets than you actually have.  Phantom Inventory also causes low sales performance and wrong assessment of the organization, department store or retail shop.

How to Reduce Phantom Inventory

Phantom inventory is one of the serious and major problems in the retail sector. But it is not given as much attention as this issue required. More often than not, phantom inventory can be traced back to human errors of various kinds: moving goods from their location without recording the change, unintentionally hiding a product, confusion when picking similar-looking SKUs, working from memory and making a mistake in the number of units or even the product, making errors when entering the data into the system, theft, etc. 

We know putting your manpower on manual counting of items is time-consuming but it is the best way to find phantom inventory. Then only you will be able to track it.  The implementation of an advanced goods management software program, such as a warehouse management system (WMS), makes it easier for companies to steer clear of these types of mistakes.

Order picking tends to produce errors so your goal should be to minimize human intervention, automate decision-making and streamline operator movements. Guided picking technology and high-performance pick stations are great tools for minimizing the risk of phantom inventory, helping operators to carry out each task in a simple, intuitive way. The aim in all cases is to make the operations as simple as possible to lower the risk of human error.

The FLEX Logistics Team is Here to Help!

Phantom Inventory is a big issue especially if you are into the retail industry. However, we can only to try to avoid it. Moreover, it is believed that if you are a huge retail company & have several warehouses. Then there are chances that are phantom inventory in your company.     

At last, as far as we are concerned, we believe that phantom inventory tracking can be done with the help of statistical data. When you keep track of historical data it’s a possibility that you can found phantom inventory exists in your company or not.  You can follow the above-suggested solution. 

Contact FLEX Logistics to learn more about our 3PL warehousing solutions and value-added services. Our team understands the importance of getting your products to the market. That is why we aim to understand your business and build lasting relationships with you and your team. ​Whether you are looking to add a new warehouse to your existing operations, growing and need to increase your distribution efforts, or starting a new company, FLEX has the solutions to meet your supply chain needs.

Contact us today to discuss your current and future warehousing and logistics needs.  We will work together with you to understand your requirements and develop a solution that will set you up for future success.

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