Inventory accuracy is crucial for any retail business. It affects everything from sales and customer experiences to forecasting and inventory decision-making. However, maintaining accurate inventory data is easier said than done.
Inventory inaccuracies can include execution errors at the store level like mistakes in manual data entry, wrong shelf placements, and damaged products. Sometimes it can be shoppers discarding unwanted items on shelves as they shop or even shoplifting. It can even be something as simple as a product falling from its peg and out of sight.
These store-level occurrences may seem minor, but they all cause unnecessary stock outs and contribute to the big problem of phantom inventory that affects businesses in every corner of the retail industry.
Risks of Relying on Manual Processes
Phantom inventory occurs when a product is listed as “in stock” in a retailer’s inventory system, but it isn’t actually available on the store shelf for shoppers to purchase. Unfortunately, retailers haven’t had an efficient or effective way to detect these issues in a timely manner.
Most retailers still rely on infrequent manual inventory counts, so cases of phantom inventory may go unnoticed for months between inventory audits. Store managers don’t have enough time to constantly inspect every SKU on shelves for inventory inaccuracies. Left unchecked, each case of phantom inventory spirals into big problems like ongoing lost sales, lower profits, unhappy customers, disrupted supply chain processes, and inaccurate future forecasts.
To prevent these problems, innovative retailers are looking for better ways to quickly identify and resolve phantom inventory across their business. Many are finding success with the power of AI.
Benefits of an AI-Powered Approach
Today, AI-driven solutions can solve phantom inventory at the granular SKU-store level. They quickly and easily integrate with a retailer’s sales and inventory systems, analyze their data, and predict the probability of sales for every product at every store on an ongoing basis. When an “in stock” product should be selling but isn’t, the system flags that SKU-store combination as a possible case of phantom inventory. AI generates alerts, listing each potential case of phantom inventory by SKU. The alerts are sent to store managers via a smartphone app to help identify areas for investigation.
By modernizing phantom inventory detection with AI, retailers can maintain accurate inventory data and realize the following important benefits:
- Lost sales reduction
When shoppers can’t find the product they want on the store shelf, they leave empty handed. With phantom inventory, retailers don’t even know that product is out of stock. With AI, retailers spot and solve cases of inventory faster than ever before and can replenish inventory to capture every sale.
- Enhanced customer satisfaction
Product availability is crucial for customer loyalty. Phantom inventory can hurt customer satisfaction and trust. Using AI, retailers can ensure that products are consistently and readily available to shoppers, creating a strong sense of satisfaction and trust that keeps customers coming back again.
- Proactive theft prevention
When a case of theft goes unnoticed, retailers wind up losing many sales opportunities until the problem is spotted and the item gets replaced. With AI, retailers can bolster their loss prevention capabilities and track feedback on each case to spot which SKUs repeatedly go missing at each location. Retailers can then focus security improvements on those locations and SKUs that are most at risk.
- Intelligent decision making
Inventory inaccuracies cause major disruptions to a retailer’s supply chain and inventory planning processes. Beyond disrupting allocation and replenishment, phantom inventory paints an incomplete picture of demand and skews sales data for future demand forecasting. With AI, retailers have accurate and reliable data at their fingertips and can leverage this data to generate more precise demand forecasts and more.
- Heightened employee satisfaction
There’s a misconception about AI taking jobs in retail. In reality, AI is helping retailers free their employees from mundane, repetitive tasks and make jobs more engaging and satisfying. Like with phantom inventory, AI helps employees move away from time-consuming and labor-intensive inventory tasks and frees up store managers for looking for inventory inaccuracies. Instead, AI does all the work behind the scenes, and gives insights for immediate, effective action.
- Maximized profits
Most importantly, AI-driven solutions for phantom inventory detection make a quantifiable impression on the bottom line. Quick and easy to roll out across every store, AI solutions ensure inventory availability, boost sales, and power intelligent decision making across a retailer’s entire network of stores. For example, for a retailer with a revenue of $1 Billion, a lift of 150-250 basis points could mean an increase in excess of $15 million in profit margin dollars.
With the right AI solution, retailers will see results fast and finally get the upper hand in the ongoing fight against phantom inventory.
The author, Tav Tepfer is Chief Revenue Officer at Invent Analytics.