Last week we took a look at one of the biggest issues facing manufacturers today – retail execution issues – and how a retail audit can help you deal with challenges regarding automatic ordering and overall distribution. This week, we thought we’d continue the trend with coverage of another major retail issue with regard to distribution: inventory management and phantom inventory.
Why is phantom inventory such a problem? When a retailer’s inventory system shows stock that doesn’t really exist, a manager could easily assume the product is not selling well and thus decide not to reorder it. This means that your shelf space may be lost and your product won’t be auto replenished and the bottom line is it won’t be in the store and won’t get sold. Additionally, when stock is selling really well, but inventory numbers don’t match up, that stock may not be recorded to fill empty shelf space – and thus the same problems arise.
Retailers, as part of their overall strategy, have minimum/maximum replenishment levels, which are required to ensure optimal use of shelf space. When a product gets to the minimum level, product is ordered to reach the maximum. These min/max targets are typically based on a service level analysis which will result in a 99% in-stock rate for that product. When these levels are kept in check, there is only a one percent chance, based on the demand history of that product, that a customer will not find this item in stock when they want to buy it.
Now envision the impact of phantom inventory. When a system shows more product than what actually exists, that percentage drops – if perfect numbers mean a 1% chance of a customer not finding product, skewed numbers mean a much greater likelihood of unused shelf space and unhappy customers.
How big a problem is this? Thanks to things like theft, breakage, data entry errors or deliberate fraud, even the unrecorded movement of items to a different area, phantom inventory can impact up to 50 percent of the items in any given store. Yes, the problem is that serious.
So if the problem is stock and the subsequent empty shelf space, what’s the solution? Since you, as a manufacturer, can’t control a retailer’s inventory management system, you have to control what you can. Being aware of what’s taking place in-store is the best way to start. Conducting retail audits at the store level correct inventory at the source is an ideal way to eliminate the loss in sales associated with this retail challenge, as well as gathering additional information regarding retailer behaviour and product awareness.
At Storesupport, we know how much phantom inventory costs a brand and we can carry out a retail audit and make corrections to help solve this problem. Call us today at 1-877-421-5081.