The Problem with Phantom Inventory in Retail
A guest column recently published in the Wall Street Journal says “phantom inventory” is a big cause of stock outs in the retail supply chain.
What is phantom inventory? It is “goods that show up in management systems as available but in fact are hidden from view because they've been misplaced, often tucked away in a backroom and forgotten,” according to a trio of academics: Fredrik Eng Larsson of the Stockholm Business School, Daniel Steeneck of the Air Force Institute of Technology, and James Rice Jr. of MIT's Center for Transportation & Logistics.
Supply Chain Digest Says... |
 |
| We would add issues with ASN accuracy, especially for split cases cartons, where such accuracy - especially in retailers lacking a strong compliance management system - is notoriously problematic. |
 |
|
|
In their column, the three authors say that “Even with today's sophisticated inventory management systems, retailers are woefully unaware of just how low on-shelf availability is for many of the products they carry,” adding that “Our research, carried out in collaboration with a major consumer goods manufacturer, suggests the problem is significantly worse and costlier than many retailers assume.”
How much worse and costly? The authors say that most measurements of known stock-out levels give a misleading impression of how a store or product is performing, with their research showing that for a category of laundry detergents sold by a large retailer, lost sales were almost five times greater than previously assumed, owing to unobserved stock-outs - delivering a substantial hit to sales of the products.
In addition to the lost sales, inaccurate perpetual inventory levels also have a ripple impact across supply chains, the authors say, leading to inaccurate demand forecasts because systems may show products as in stock but unsold when in fact they haven't made it to store shelves at all.
Visit the Retail Vendor Performance Management home page to learn more
and subscribe to the monthly newsletter.
“Such faulty readings mount if the problems are repeated across many stores, triggering flawed sales reports that affect forecasts, production planning, measurement of store performance and automatic replenishment,” the authors say.
What causes the phantom inventory? Inventory records can't capture that certain items may have been stolen. Scanning errors, such as scanning the same UPC code for different SKUs say for cans of soup, give false readings of what product have been sold. Inventory sent to the store for a special promotion is often marooned in the backroom because store managers didn't run the promotion or stocked the products in a haphazard way.
We would add issues with ASN accuracy, especially for split cases cartons, where such accuracy - especially in retailers lacking a strong compliance management system - is notoriously problematic.
So what's the answer?
The authors say one approach with a lot of potential is to develop special analytics using machine learning technology. The analytics methods re-create the demand patterns for individual products, and incorporate the demand inventory uncertainty for each stock-keeping unit into forecasts and plans.
“When used in concert with existing solutions, this approach improves forecast accuracy and increases sales by dramatically reducing the number of stock-out events,” the authors conclude.
Interesting New Solutions at NRF 2017
SCDigest was at the NRF Big Shows at the Javits Center in New York City in mid-January, and wanted to share a couple of interesting new solutions there.
First, an expanded wide area RFID reading system from Zebra, called smartsense for retail. These wide area readers are placed on a store ceiling, and can read RFID tags with a high degree of accuracy in real-time across about 1500 square feet, and can be ganged together to cover larger areas.
 What makes this Zebra solution different from other systems is that RFID reading is just one of its capabilities. It can also capture video with embedded cameras and use some ultrasonic technology to track smart phones, among other potential data feeds from one device.
This, Zebra says, can enable richer applications, such as tracking a given specific shopper through his or her smart phone combined with what RFID tagged items he or she has in a shopping cart, leading to all sorts of analytics about shopper behavior. This is innovation for sure, and a very new type of more total system solution from Zebra.
Digimarc was back to NRF with its special technology that can invisibly embed a bar code in a product's packaging. This can not only allow very rapid POS scanning (no need to orient the package to find the bar code), but support other applications.
For example, Bossa Nova Robotics has a robot that walks the store aisles, reading Digimarcs in the packaging and comparing that to the planogram to identify out-of-stocks.
Other companies have brought robotic solutions to market that do the same thing using video imaging - but the Digimarc approach is likely to be faster and offer greater accuracy.
The problem: the solution only works if all the goods on the shelf have Digimarc bar codes in the packaging, presenting a real chicken-and-egg problem.
Grocery Wegman's has been putting Digimarcs in its private label goods packaging.
Amazon Fulfillment Center Rollout Continues On
The on-line giant added 26 FCs worldwide last year, bringing its total distribution facilities of all kinds across the globe to an amazing 361, according to the consultants at MWPVL International, which have been tracking Amazon's network with rigor for years.
But Amazon is hardly slowing down. It has already announced plans for three new 1 million+ square feet DCs in Maryland, Jacksonville and the Dallas so far in 2017.
Your Comments/Feedback
|
