{"id":8932,"date":"2023-07-05T06:45:00","date_gmt":"2023-07-05T06:45:00","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/phantom-inventory\/"},"modified":"2026-04-20T17:06:43","modified_gmt":"2026-04-20T17:06:43","slug":"phantom-inventory","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/phantom-inventory\/","title":{"rendered":"Don\u2019t Get Spooked by Phantom Inventory: Definition, Causes, and Solutions"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is phantom inventory?<\/a><\/p>\n\n\n\n

The negative impact of phantom inventory on ecommerce<\/a><\/p>\n\n\n\n

4 common causes of phantom inventory<\/a><\/p>\n\n\n\n

How to prevent phantom inventory<\/a><\/p>\n\n\n\n

How ShipBob can help businesses tackle phantom inventory<\/a><\/p>\n\n\n\n

Phantom inventory FAQs<\/a><\/p>\n<\/div>\n\n\n\n

In ecommerce, how inventory flow<\/a> in managed and accounted plays a vital role in warehouse efficiency<\/a> and your bottom line.<\/p>\n\n\n\n

Inaccurate inventory reporting is inevitable, but when you’re continuously seeing more inventory reported than what you physically have, then it can raise concern.<\/p>\n\n\n\n

This phenomena is known as “phantom inventory,” and every growing business has seen a case of it. But how can a business get better at preventing an inventory discrepancy? <\/p>\n\n\n\n

In this article, we’ll discuss what causes phantom inventory and what to do about it. <\/p>\n\n\n\n

What is phantom inventory?<\/h2>\n\n\n\n

Phantom inventory refers to the inventory that\u2019s available in your records but doesn\u2019t physically exist. It\u2019s a discrepancy in your physical stock levels and your inventory records<\/a>, usually due to factors such as theft, spoilage, breakage, data entry errors, or misplacement. <\/p>\n\n\n\n

For example, if your records show that you still have 10 units of a certain SKU left so a customer places an order for 5 units. But when your picking team goes to pick those items from storage, they notice that there are actually only 3 units left.<\/p>\n\n\n\n

In this case, the 7 remaining units are considered phantom inventory.<\/p>\n\n\n\n

The negative impact of phantom inventory on ecommerce<\/h2>\n\n\n\n

Regardless of what caused phantom inventory to exist, one thing is for certain \u2014 it can have a serious negative impact on your business. <\/p>\n\n\n\n

Here are some of the main ways in which phantom inventory can harm your ecommerce business.<\/p>\n\n\n\n

Forecasting inaccuracies<\/h3>\n\n\n\n

Accurate inventory forecasting<\/a> provides the data and clarity necessary to make inventory decisions and helps you plan your inventory replenishment<\/a> accordingly to meet demands. <\/p>\n\n\n\n

But when phantom inventory exists, it skews your forecasting numbers, since you don\u2019t have an accurate sense of your inventory needs. <\/p>\n\n\n\n

Forecasting inventory is never accurate, but when you’re dealing with inaccurate numbers, it’s hard to make the best decisions in terms of how much inventory to order. And, it can increase your risk of backorders<\/a>.<\/p>\n\n\n\n

Risk of stockouts<\/h3>\n\n\n\n

As a direct result of the above, you\u2019re likely to experience stockouts, since there\u2019s a discrepancy between the number of physical units left in stock and the number of units in your records. <\/p>\n\n\n\n

You\u2019re essentially recording more inventory than you actually have, which means you won\u2019t be aware of stock levels dipping below your usual reorder point<\/a>. So you won\u2019t be placing replenishment orders on time, which puts you at risk of running out of physical stock.<\/p>\n\n\n\n

Businesses that use manual inventory recording or outdated systems are prone to experiencing this type of issue as they lack visibility into their inventory. <\/p>\n\n\n\n

Poor customer experience<\/h3>\n\n\n\n

Imagine buying something that the website clearly shows as \u201cin stock\u201d only to find out later that it’s unavailable to ship. This can cause frustration for customers who expected to receive the item before a certain date. <\/p>\n\n\n\n

Even if a refund was issued, it means that the customer is mostly like going to search for similar product someplace else. Since a sale can’t be made, there is also stockout costs<\/a> associated to this.<\/p>\n\n\n\n

This issue often arises when the inventory system being used is incapable of communicating in real time with your online store. <\/p>\n\n\n\n

<\/p>\n\n\n\n

Lost revenue<\/h3>\n\n\n\n

Phantom inventory also translates to a loss of revenue for your ecommerce business. If an item isn\u2019t physically available for you to sell, it\u2019s obviously not going to generate revenue. <\/p>\n\n\n\n

Moreover, you lose the opportunity to generate revenue when you lose customers to other retailers \u2014customers who definitely would\u2019ve made a purchase if the item had been available right away to pack and ship.<\/p>\n\n\n\n

You can always write this loss off at the end of a fiscal or accounting year. But since beginning inventory<\/a> is a business asset, it’s still lost revenue if some inventory is lost and can’t be sold.<\/p>\n\n\n\n

False sense of profitability<\/h3>\n\n\n\n

Sometimes when you have more inventory in your records than what\u2019s physically available, it has the potential to inflate the value of your assets. <\/p>\n\n\n\n

This creates a false sense of profitability for your business, which could result in poor decisions that eventually impact actual profit made. <\/p>\n\n\n\n

For example, if your records show that you still have sufficient stock of a high-demand SKU, you might feel comfortable with current sales forecasts and inventory levels. <\/p>\n\n\n\n

But if you end up selling out and later realize you didn’t have as much inventory as you thought, you’ll end up with less-than-ideal sales numbers and not enough inventory to sell more on time to meet demand.<\/p>\n\n\n\n

4 common causes of phantom inventory<\/h2>\n\n\n\n

The key to preventing phantom inventory is by getting to the root of the problem, which would involve understanding what causes it. <\/p>\n\n\n\n

Here are some of the main causes of phantom inventory that you should be aware of.<\/p>\n\n\n\n

Overstocking<\/h3>\n\n\n\n

While it may seem contradictory, overstocking<\/a> could potentially result in phantom inventory. When you order more inventory than you actually need, a significant portion of the inventory goes unsold.<\/p>\n\n\n\n

It sits in the warehouse where it\u2019s at risk of expiring, going obsolete, getting damaged, or even getting stolen by unscrupulous staff. <\/p>\n\n\n\n

Eventually, you end up losing some of the inventory while your records still show that you have the same level of stock left.<\/p>\n\n\n\n

Poor inventory management practices<\/h3>\n\n\n\n

Lack of proper inventory management<\/a> is another leading cause of phantom inventory. When you\u2019re not managing your inventory as you should, you might not be performing regular inventory audits<\/a>.<\/p>\n\n\n\n

As such, you might be failing to account for inventory that has been damaged, lost, stolen, misplaced, or have become obsolete (outdated technology, out-of-style apparel trends, etc). <\/p>\n\n\n\n

Unless this is done on a regular basis, there\u2019s a high chance that your inventory records will no longer match the actual physical inventory levels. This can lead to a discrepancy in your inventory data, with a significant portion turning into phantom inventory.<\/p>\n\n\n\n

Data inaccuracies<\/h3>\n\n\n\n

Inaccuracies in your inventory data can also result in phantom inventory. <\/p>\n\n\n\n

These inaccuracies are often a result of human error. For example, your receiving team may have accidentally recorded a higher number of units than they actually received, or they may have failed to account for the goods that arrived damaged <\/p>\n\n\n\n

Similarly, there can also be inaccuracies if sales weren\u2019t recorded correctly or if your inventory management software<\/a> isn\u2019t providing real-time insights.<\/p>\n\n\n\n

Lack of inventory visibility<\/h3>\n\n\n\n

When you don\u2019t have real-time visibility into your inventory, there\u2019s a greater risk of phantom inventory. Implementing real-time inventory management<\/a> is key to understanding exactly how much inventory you have in the given moment.<\/p>\n\n\n\n

Real-time inventory tracking becomes even more important when more than one sales channel is involved, including other retailers in a B2B commerce<\/a> case. Along with multichannel retailing<\/a>, storing inventory in one or more warehouses also calls for real-time inventory data.<\/p>\n\n\n\n

Without this information, you could miss accounting for certain items that have already been sold or even those items that have been misplaced, damaged, or stolen.<\/p>\n\n\n\n

How to prevent phantom inventory<\/h2>\n\n\n\n

Now that we understand the causes, it\u2019s time to look at the preventative steps. <\/p>\n\n\n\n

Here are some of the best ways you can prevent phantom inventory from occurring.<\/p>\n\n\n\n

Implement proper inventory management practices<\/h3>\n\n\n\n

Implementing inventory management best practices is one of the most critical steps to ensuring that your inventory levels are accurate and updated according to your physical stock count. <\/p>\n\n\n\n

Start with an inventory tracking<\/a> system that will keep an accurate count of your physical inventory levels while factoring in things like unsellable items and returns. <\/p>\n\n\n\n

Accurate inventory tracking identifies:<\/p>\n\n\n\n