How retailers can prevent phantom inventory from affecting their bottom line

Dive Brief:

  • Phantom inventory, or missing products that appear as stocked and available in tracking system, frequently interferes with retailer efforts to sustain lean inventory levels, various professors wrote in a guest post for The Wall Street Journal last week.
  • Lost sales from phantom inventory was, in one instance recorded by the contributors, five times greater than originally accounted for by traditional analyses. Such forecast inaccuracies can extend throughout the supply chain as well.
  • The problem frequently occurs due to product misplacement, unfulfilled marketing campaigns, product theft and inaccurate exit scanning, among others. The issue is compounded when it occurs within numerous stores, and can seriously affect supply chain assessments such as individual store performance.

Dive Insight:

In-store inventory management has always been a problem, but new tools show the potential to increase forecast accuracy through better tracking mechanisms.

One such solution involves double checking inventory accuracy through retail analytics solutions, which use machine-learning algorithms to analyze the hundreds of thousands of SKU data points daily in order to spot in-store oddities resulting from a non-sale missed replenishment. Sure, the retailer must still find the item, but at least they know the item is missing.

Of course, in order to use these data points they must first be collected. Note the decade-long push for full RFID-implementation, or that of other tracking technology. While the retailer will often not employ these systems due to an unfavorable cost-benefit analysis, accounting for phantom inventory could change the calculus.

In just a few signs for increased SKU-level tracking implementation, Macy's has pledged to fully tag inventory by 2017, and Amazon recently announced its new brick-and-mortar grocery store would use an RFID-based inventory management system.

Follow on Twitter

Filed Under: Operations Technology
Top image credit: Bflshadow via Flickr