Phantom inventory

Phantom inventory is a common expression for goods that an inventory accounting system considers to be on-hand at a storage location, but are not actually available. This could be due to the items being moved without recording the change in the inventory accounting system, breakage, theft, data entry errors or deliberate fraud. The resulting discrepancy between the online inventory balance and physical availability can delay automated reordering and lead to out-of-stock incidents. If not addressed, phantom inventory can also result in broader accounting issues and restatements.

A number of techniques have been used to correct phantom inventory problems, including physical cycle counts, RFID tagging of items and statistical modeling of phantom inventory conditions.

Business models such as VMI (Vendor Managed Inventory) and CMI (Customer Managed Inventory) attempt to eliminate the issues surrounding inaccurate inventory counts. VMI involves the vendor in a vendor/customer relationship controlling inventory while CMI involves the customer having control of inventory replenishment. Both systems rely on accurate inventory counts of all parties in the supply chain through the use of next-generation applications.