of margin lost on a picking error (Sulco Lancer)
of phantom stock: invisible excess and invisible shortage
What is phantom inventory?
According to Redalyc (2020), phantom inventory refers to a situation where a product is recorded as available in the computer system but is physically absent or inaccessible in the warehouse or store. The inverse phenomenon also exists: products physically present but not recorded in the system. In both cases, the gap between physical reality and digital data leads to incorrect operational decisions.
How phantom inventory forms
Several mechanisms generate phantom inventory. Data entry errors during receiving: a quantity of 100 entered when 80 were delivered. Undetected theft, which reduces physical stock without system impact. Damaged or misplaced products that remain in the system. Poorly managed returns that re-enter system stock without physical return. In a warehouse operating without scan confirmation, each of these situations can persist for weeks or months.
Direct impact on sales and purchasing decisions
Research published in ScienceDirect (2011) quantifies the impact of inventory inaccuracies on commercial performance. The authors show that phantom inventory generates two types of commercial costs: lost sales (product shown as available, order confirmed, then inability to deliver) and overstock (supplier orders placed based on falsely low stock levels). These two situations respectively generate customer losses and unplanned cash tie-ups.
The hidden cost of a picking error
Sulco Lancer estimates that a single picking error can absorb up to 13% of the affected order's margin, between return costs, re-shipping, customer service, and potential penalties. In a phantom inventory context, these errors are more frequent because operators search for products that the system indicates as present but which are not physically there.
Phantom inventory is the most deceptive symptom of manual management. It's invisible until it causes a customer incident or an unexplainable inventory discrepancy. A WMS with scan confirmation at every movement eliminates the conditions that allow phantom inventory to exist.
This summary is a free reformulation of works published on Redalyc (2020), ScienceDirect (2011), and Sulco Lancer, created for informational purposes. Key ideas are attributed to the cited authors. Consult the original sources for complete analyses.
Original sources
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The impacts of inventory record inaccuracy and cycle counting on distribution center performance
Iuri Rafael Destro, Francielly Hedler Staudt, Karine Somensi, Carlos Taboada, 2023
View original article - 2
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