How to Reduce and Avoid Phantom Inventory in Your Business?

Avoid Phantom Inventory

Inventory is an important part of business especially in sectors such as the retail sector and online business. For the retail sector inventory is the source of revenue generation.

According to the blog of Conveyco about inventory statistics,  “The average U.S. retail operation has an inventory accuracy of only 63 percent”.

When there is only an accuracy of 63 percent there are bright chances of phantom inventory existence in business! In this blog, you will know how you can eliminate phantom inventory! But first, let us know what exactly it is! So, let us begin!

What Is Phantom Inventory?

Also Read: Everything You Need to Know About Phantom Inventory

Phantom inventory is that inventory that does not exist in the business for utilization. It means that according to your data you have inventory available but when you check physically you don't have stock.

Phantom Goods can lead to business loss as your real inventory is either stolen or missing. Moreover, you will also lose potential customers and profit margins will decrease as well.

Phantom inventory occurs due to many reasons such as theft, misplacement, data entry errors, breakage, etc. It leads to a discrepancy between real inventory and inventory records. If phantom items are not addressed properly, it can impact business negatively in a huge way accounting restatements and adjustments.

The manufacturing industry has lots of involvement in inventory because they manufacture products in order to manufacture products, they need machines and machines need spare parts which are inventory.

All industries need inventory one way or another.

How to Identify If Phantom Inventory Exists in Your Business or Not? How Can You Reduce Phantom Inventory in Your Business?

Ways To Reduce Phantom Inventory

It is not easy to identify phantom inventory exist in your business because as the inventory number increases chances of phantom inventory existence also increases. However, below we have mentioned few points through which you can know if phantom goods exist in your business or not.

1. With Audit Process

The audit process can be a long process specifically when you have a lot of inventory. However, the audit can provide the actual picture of your inventory warehouse.

Then you can compare your data records with the conducted audit record. This is one of the most effective practices through which you can identify phantom inventory exist in your business or not.

For better results, you can perform inventory audits frequently.

2. Inventory Cycle Counts

The inventory cycle count is very similar to the audit procedure. It is a perpetual inventory count however, for this process accuracy is very important.

Cycle count can be used to identify the root cause and then monitor the effectiveness of the actions to eliminate the root causes. In the process, you compare the previous statistics with this year's data.

If there is no change in the inventory then the cycle will be similar to the previous year, if there is change then you need to pay attention to the factors which have influenced numbers.

Also Read: What Are the Various Strategies to Improve Inventory Management?

3. Tagging Inventory

Tagging inventory is one of the effective ways. It will keep you informed about inventory. When you have tagged inventory, it will save your time means you will not have to waste time looking for specific inventory with inventory tags you can easily find.

It will also save from theft and misplacement plus you will be always aware of inventory location. This is also an effective method to avoid phantom inventory.

For inventory tracking, you can use methods such as RFID (Radio-frequency identification), QR Code (Quick Response Code). These methods are cost-effective and help organizations in the long run.

4. Implement Automated Software

Automated software can be really helpful in eliminating phantom inventory. It automated the process and with the help of tagging inventory, it becomes quite a simple process.

Each tag has a unique identification number that is stored in the software whenever the tag is scanned it automatically retrieves information.

This automated software works in real-time whenever inventory is purchased or sold it updates the number. It decreases the chances of a phantom item's existence.


These are the few factors through which you can know if phantom inventory exists in your business or not. However, the best way to get rid of phantom inventory is to keep track of inventory through automated software such as inventory management software.

This software provides several benefits such as accurate tracking, real-time information, inventory count, avoid the stock-out and overstocking issue.

It also enables you to get a complete view & visibility of your inventory. With this software, you can organize your warehouse and better information for your customers such as when products will be delivered.

This software also assists in providing a better customer experience.

If you want to eliminate phantom inventory, then this software can really help you! Not just in eliminating phantom inventory but also offers several ways to grow your business. It has the potential to take your business to another level.

Also Read: How to Eliminate Industrial Inefficiencies Through Asset Management Software?

Frequently Asked Questions (FAQs)

1. What are the most common inventory management issues?

The most common inventory management issues are overstocking and out-of-stock issues. Every business wants to grow but sometimes we overdo it! When that happens, overstocking issues occur as a result you are not able to finish stock, and business loss occurs. Sometimes you do not know that you are out of stock that way also you lose potential sales and customers.

2. What are the benefits of using inventory management software?

The benefits of using inventory management software are given below:
1. Eliminating spreadsheet utilization
2. Improved accuracy
3. Precise inventory tracking
4. Real-time information
5. Improved budget and inventory forecasting
6. Better inventory visibility
7. Eliminating theft and misplacement
8. Reports and statistics

3. What are the main reasons that phantom inventory exists?

The main reason behind phantom inventory existence is that there are wrong data about sales and purchasing of inventory. Another reason is theft and misplacement. Theft has always been an issue especially when inventory size is small, they can be easily hidden. Sometimes inventory is kept somewhere else, and employees look in other places.

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