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Why Phantom Inventory Harms Loyalty — and How Grocers Can Fight Back

phantom inventory

The biggest supply chain disruptions in recent memory have passed but their impacts are still being felt by cautious consumers. According to a recent Ipsos poll, nearly two-thirds (65%) of Americans say that grocery stock availability is worse today than before the pandemic—a challenge that threatens not only immediate sales but long-term customer loyalty.

“Poor availability, in particular, is a huge problem, not just operationally but, ultimately, in customer experience,” said Paul Boyle, CEO of Retail Insight. “Stock inaccuracies caused by phantom inventory have a significant impact on a retailer’s ability to ensure products are replenished effectively. Retail Insight’s research shows that 78% of U.S. shoppers already experience out-of-stocks on their favorite items, and that directly affects customer loyalty. In fact, three in ten U.S. consumers would question their loyalty to a supermarket if out-of-stocks became a regular occurrence, the same Retail Insight survey showed.”

The cause of this “phantom inventory” can originate at many points along a retailer’s supply chain, but it is often a case of faulty data. A study by ECR Retail Loss Group found that as much as 60% of inventory records are inaccurate, which can lead to replenishment lags, lost sales, and reduced customer loyalty.

“While there are many potential causes of inaccurate inventory, most of them come down to poorly defined and poorly executed inventory management processes,” said Steven Walter, Senior Manager of Supply Chain at enVista. “One of the primary culprits is inaccurate receiving. This is when the quantity of inventory received does not match the quantity on the PO, and this is not adjusted upon receipt to the store or warehouse.”

The key to tackling phantom inventory is to recognize that the solution requires constant monitoring, not a one-time upgrade. A key element for minimizing out-of-stock inventory is real-time monitoring of products from the warehouse all the way to the store so that associates and managers can react to problems as they appear, rather than try to find and correct them after it’s too late.

“It is important for retailers to recognize that inventory drift is inevitable, so phantom inventory will be something that has to be tackled,” said Boyle. “Unfortunately, the approach of manual audits is not an effective or sustainable solution; within two weeks of a count, the inventory file will already have been corrupted. The only way to truly stay on top of your inventory record accuracy is to constantly be monitoring it through intelligent technology.”

Data & Communication is Key

Boyle noted that these insights need to be shared with workers in an impactful, targeted, and accurate manner that can be integrated into existing workflows. The technology in play also requires flexibility to enable grocers to tailor the insights to each store’s own systems and processes.

Additionally, accurate inventory measurements can be used to drive long-term success by giving grocers better access to historical sales data that can help right-size inventory and manage pricing over the long term, according to Gabe Wight, General Manager, Retail E-commerce Analytics at 1WorldSync. This approach can power more efficient omnichannel operations as well.

“Retailers can also use data to allocate inventory to different channels (online or in-store) more efficiently,” said Wight. “This increased awareness of product volumes helps meet consumer needs and even attract new shoppers. An omnichannel inventory management system will track and manage inventory across all channels ensuring that customers have a seamless experience regardless of how they choose to shop.”

Properly implemented solutions need to be matched with strategies that can make the most of the technology. While this can be a challenge, grocers that manage to use real-time insights as a foundation for broader methods of combating phantom inventory will find themselves able to combat this phenomenon no matter where in the supply chain problems arise.

“Solving inventory inaccuracy relies on the root cause of the issue,” said Walter. “Retailers need processes to follow a path for problem-solving. Consider if the systems are in real-time, if they scan 100% of receipts from the DC, or if they make assumptions that the DC shipped 100% accurately. Preventative measures like stock monitoring and cycle counting are ways to mitigate inventory problems before they reach the customer. Stores can also utilize creative stocking policies like shelf specific min/max settings and dynamic safety stocks for recurring issues.”