Learn how Alloy can help you identify and resolve phantom inventory.
Phantom inventory is a silent killer that saps revenue from consumer brands and retailers in the order of billions of dollars per year. Phantom inventory occurs when items that don't, in reality, exist still appear in the store or DC inventory, blocking replenishment and masking the problem. It can occur because of theft, unreported shrink and/or other random loss of inventory.
For example, Walmart RetailLink may show that there are two units of your top-selling SKU in several Walmart locations, but in reality, the shelves have been empty for months. As a result, you're chronically out-of-stock, losing sales day after day.
How Alloy Can Help
In this article, we will talk about your team's steps to identify and resolve phantom inventory.
1. How to identify likely instances of Phantom Inventory
To identify phantom inventory instances, you can filter item-location combinations that register inventory but have had no sales for the past eight weeks. You can do that by using Alloy's phantom inventory metric. Alloy's phantom inventory metric is calculated based off of 3 criteria:
1. Item-location has had historical sales in the trailing 12 weeks
2. Item-location has not had any recent sales
3. Item-location has inventory at the store
Based off of these 3 criteria, Alloy will determine if an item-location is a suspected phantom inventory instance! (If phantom inventory = 1, then it is a suspected instance)
2. How to resolve the problem
After identifying potential phantom inventory using Alloy, you can take different paths to resolve the issue.
1) Reset inventory levels: You could flag phantom inventory instances to your retail buyer, and they would manually reset inventory levels to zero for those stores, triggering replenishment. However, most replenishment managers and retail buyers are incentivized to keep inventory lean, so this might not be the best course of action.
2) Conduct a test group replenishment: If you see you have one thousand SKU-store combinations with potential phantom inventory, you could do a test group of one hundred to reset the stock. Wait until the stores are replenished, and if sales start flowing again, that's a clear sign that you were right. Now you can go back to your buyer and ask them to reset inventory for the other nine hundred stores.
3) Store visits: If the price point of your products justifies it, your team can also pick up the phone or send field reps to visit the stores and methodically check if they have the product on the shelf. Suppose the store manager can validate that you have phantom inventory: You can then ask your replenishment manager to replenish the store. If the issue occurs because of theft, you can have a productive data-driven conversation about the theft and security process with the retail store.
3. Measuring and reporting on the impact
It is always a good idea to run a pre/post analysis of the sales at the SKU-store combinations you've addressed so that you can show the results. If you have fixed the problem, you should see sales restarting once those chronically out-of-stock locations were replenished or you successfully addressed the theft issue.
How to set up your Alloy dashboard
- Sign in to app.alloy.ai
- Click Analysis at the top, and select the tag Alloy Applications Templates
- Open the dashboard called Template - Phantom Inventory
- From the drop-down next to Save, select Save As, and name your new dashboard
- Note: If you do not see the template in your instance, please message your Client Solutions Lead!