Don't Get Spooked by Phantom Inventory

Learn about:

Phantom inventory and what it is
How phantom inventory can affect your forecasts
What to do about phantom inventory

What is phantom Inventory? Phantom Inventory refers to product that a store records as On Hand but is not actually present. Phantom inventory can happen to any supplier at any time and can cause expensive replenishment issues.

Phantom inventory: the silent killer

Phantom inventory occurs when the inventory levels shown at the store level are inaccurate. For most suppliers, Walmart relies on its Global Replenishment System (GRS) forecast to automatically reorder products based on a store’s need, weighed against its pipeline.

For example, Walmart’s forecast expects store 100 in Bentonville, AR, to sell three units next week. If the store’s pipeline indicates five units On Hand (that aren’t actually there, also known as phantom inventory), the system will fail to generate an order.

If Walmart’s GRS system believes a store has product even when it doesn’t, it will delay an order (or not place it altogether), leading to:

Out-of-stocks
Lost sales

In fact, phantom inventory is one of the major root causes behind instock problems at Walmart.

Phantom inventory can be dangerous because it’s a “silent killer.” This issue often sneaks up on a lot of suppliers because everything looks “right” on paper (filling orders On Time and In Full, instocks look “healthy,” etc.), but the supplier just doesn’t seem to be selling what’s expected. As the supplier sells fewer products because of phantom inventory, Walmart’s system artificially suppresses its forecast (because it believes the product isn’t “moving”), leading to fewer orders and further lost sales.

What can cause phantom inventory?

Replenishment errors
Shrink
Improper handling of merchandise
Incorrect recording of sales

What can suppliers do about phantom inventory?

Suppliers have a few options in handling phantom inventory.

Option 1: Run a phantom inventory analysis

Suppliers can run a phantom inventory analysis and compare recent point-of-sale (POS) activity at an item-store level against:

Store pipeline
Historical POS

Next, they can flag a store if it has had historical sales but hasn’t sold at similar levels recently, though it has sufficient product in the pipeline, which indicates a potential for phantom inventory.

Once the supplier has a list of stores they suspect has phantom inventory, a few tactical options become available:

Send an SSO/DC Push
Request Walmart perform an On Hand audit

The pros of this option include:

Low cost
The supplier can run the SSO or DC push multiple times and as needed

However, there are some cons:

The analysis is highly tedious and time-consuming, without a system to help point out potential issues
No “eyes on the product” – it’s an imperfect approximation of phantom inventory
Many buyers will not allow for an On Hand audit unless in extreme situations; even then, suppliers are at the mercy of the execution of the audit by store associates

Option 2: Hire a third-party company

The second option to handling phantom inventory is to hire a third-party company to physically audit stores and make On Hand adjustments.

The pro to this approach is that suppliers get “eyes on the product.” Teams can be physically present at stores to count actual products to recommend accurate On Hand quantities.

However, the cons are that it only includes a snapshot in time and can be very cost-prohibitive. Most third-party companies charge per store, and suppliers can have hundreds, if not thousands, of stores.

Option 3: Use SupplyPike’s Retail Intelligence app

The final option is to use a third-party analytics service to find stores with phantom inventory. Using the Shelf Availability Map in SupplyPike’s Retail Intelligence, you can quickly spot problematic stores (reports take less than 1 minute to set up and run) and download the needed data.

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