Phantom Inventory is Plaguing the Grocery Landscape. Here’s How to Fix it.

To fix phantom inventory, food retailers need a better understanding of the accuracy of their inventory levels, complete with insights into how and why their stated inventory is failing to keep up with consumer demand.

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Gaps on shelves. Missing products. Disappointed customers.

An all-too-familiar scenario facing grocery retailers, and one that is increasing in prevalence.

Nearly 78% of consumers have experienced out-of-stock products in stores over the last year, an increase of 6% from the year prior, according to a survey of over 1,000 U.S. grocery shoppers from Retail Insight.

What is causing phantom inventory and why it’s getting worse

Unfortunately, there isn’t a sole culprit causing phantom inventory. It’s a combination of factors that create an unenviably complex environment for retailers to navigate.

From the point of delivery to the point of sale there are multiple opportunities for products to go "missing," including:

·        Incorrect delivery volumes can lead to over-exaggerated stock counts;

·         Mis-picks for online orders cause challenges for product availability;

·         Theft means that your products aren’t being registered as sold;

·         Mis-scanned items create havoc with inventory records; and

·         Labor shortages make it tough for retailers to correct any inventory imbalances.

Theft, in particular, is on the rise and becoming an increasing challenge. In the United States, organized attacks on retail outlets are causing chaos for retailers and customers alike.

However, regardless of the contributing factors, they all create one problem – inaccurate inventory records, otherwise known as phantom inventory. With phantom inventory, retailers believe they have more stock on-hand than they actually do, causing gaps on shelves and disappointed customers.

Retailers are responding to this challenge by embracing technology and turning their stores into “fortresses,” but there is typically a solution much closer to home and one that underpins all the technology they integrate. Data.

Why retailers should embrace data to tackle phantom inventory

As mentioned previously, phantom inventory is the discrepancy between stock listed on a retailer’s inventory record and the inventory available in-store. Whether it's mis-scans, short deliveries, or light fingers, inventory records are almost immediately outdated.

Ultimately it is the customers that suffer, and retail has an incredibly high churn rate. If you don’t have the right product on the shelf, be it digital or physical, a shopper will go elsewhere. To highlight the frequency of this, two-thirds of customers in the Retail Insight survey reported that their favorite brands have been less available over the last year, and 51% have noticed missing more items from their online grocery orders, despite the product being listed as available online.

To prevent increased customer churn and protect bottom lines, retailers need to get a better picture of their inventory levels. It’s the underlying challenge, and if you can identify where you expect to see, or have, instances of phantom inventory, a retailer can automatically update their inventory records. However, that's easier said than done.

Many stores attempt to restore order using manual audits of stock levels, but this method takes up precious time and only presents a limited picture of availability at a given point in time. Plus, manual counts are prone to human error.

Cameras and robots can also help to identify gaps on shelves, but these are dependent on an accurate base level of data, have accessibility limitations and have very high capital expenditure costs.

The solution surprisingly lies in something retailers already have in abundance – their data.

If you use the right analytical techniques, shifting to a data-driven approach can allow retailers to get full visibility of their phantom inventory issue. It enables automation, improves accuracy, enables operational productivity, and improves overall profitability.

As much as 63% of grocery retailers’ inventory records are likely to be inaccurate at any given point in time, according to a study from ECR Retail Loss. So, a solution that leverages owned data at a lower cost with higher accuracy is something retailers should start to take note of.

The doors that data can open

So, what are the right analytical techniques?

It is probably no surprise that the proliferation of artificial intelligence extends to solving complex challenges like these, but in combining AI with human subject matter expertise (retail know-how), you unlock a range of possibilities.

That technological mix can be applied to a retailer's foundational, real-time data (sales, item, range, inventory, store) to build a predictive view of their actual inventory position. If done well, grocers can utilize real-time insights to prioritize actions that have the most impact on sales.

At the store level, associates can receive actionable alerts for immediate inventory replenishment and gain a better understanding of what inventory issues are having the biggest knock-on effects on their stores’ bottom lines. This saves precious time and energy and ensures that employee attention is always directed to the most valuable and impactful areas of a store.

From an inventory management perspective, store managers can better understand potential inventory issues before they appear. In turn, this information can help them forecast and plan, ensuring that inventory is always readily available when customers need it.

As a result, grocers that build a strong foundation using real-time insights and a data-driven approach to combat phantom inventory will finally be able to tackle this growing problem, regardless of where the issues begin.

Altogether, to fix phantom inventory, food retailers need a better understanding of the accuracy of their inventory levels, complete with insights into how and why their stated inventory is failing to keep up with consumer demand.