How to Close the On-Shelf Availability Gap Costing You Sales

Poor on-shelf availability (OSA) is a classic lose-lose scenario for retailers.

Retailers miss out on selling an item, and customers are disappointed they can’t buy it.

It's a direct symptom of a massive retail problem known as inventory distortion - the total business cost resulting from having too little or too much product.

At the heart of this issue are out-of-stocks, which directly lead to a retailer's biggest operational nightmare: low on-shelf availability.

Poor data, inefficient replenishment processes, and ‘phantom inventory’ (when stock appears in systems but not on shelves and out-of-stock) are the biggest culprits.

The truth is, what the system says and what the shopper sees often don’t line up. That’s where the disconnect lies. The numbers may suggest the shelf is full, but the customer is staring at an empty space.

To truly understand why this happens - and how to fix it - we need to break down two concepts that sound similar but behave very differently: on-shelf availability and balance on hand (BoH).

What is on-shelf availability?

On-shelf availability measures the number of products physically available to shoppers at the shelf. It’s a key performance indicator (KPI) that retailers can use to determine how well they are meeting customer demand.

On-shelf availability is highly dependent on the balance on hand. But it’s important to distinguish that the relationship isn't equal, and relying solely on system inventory accuracy can cause issues.

What is balance on hand?

Balance on hand refers to the inventory recorded in a retailer’s system as being available in store, usually calculated as the difference between what’s delivered (via the inventory management system) and what’s sold (via point of sale).

In theory, system inventory should be accurate and reflect what’s ready to sell. In reality, it often doesn’t.

Balance on hand is a belief. On-shelf availability is the reality.

Table explaining the difference between on-shelf availability and balance on hand

Metric	Definition	Measures	Impact on Sales
OSA	% of required stock physically present on the shelf.	Real stock availability and reflects true customer experience.	Higher OSA enables sales by ensuring products are on the shelf when customers want them, minimizing lost sales.
BoH	Inventory recorded in the system (deliveries minus sales data).	The overall inventory level in the store's system, does not measure the real shelf availability.	In-stock items don’t guarantee sales; they may exist in stock but not be on the shelf for purchase.

BoH is prone to inaccuracies caused by shrinkage, misplaced items, data entry errors, operational delays, and more. It lacks real-time visibility into what is actually available on the sales floor.

A high inventory but low shelf availability indicates a significant gap between what you think you have and what customers can actually buy.

Phantom inventory: the biggest cause of inventory and availability disconnect

If the inventory system data is incorrect (e.g., it indicates there are 10 items in stock when the shelves are empty), it creates a misleading stock illusion, also known as phantom inventory. The system may not trigger reordering, leading to poor on-shelf availability.

What causes phantom inventory?

Phantom inventory can occur for several reasons:

• Shrinkage due to theft, damage, or spoilage
• Misplaced stock in the backroom or overstock areas
• Restocking delays, the product exists, but hasn’t made it to the shelf
• Inefficient promotion management
• Receiving or data entry errors from manual processes
• Inaccurate cycle counts and system sync issues

Inaccurate system data presents a form of double jeopardy for retailers.

Phantom inventory leads to out-of-stocks, but when the balance on hand shows zero, and the product is still physically present in the store, it can trigger unnecessary reordering. This leads to excess stock, especially for perishables, and increased holding costs.

This is partly why carrying more inventory isn't a fix for low on-shelf availability. Even if it's in the stock room, it doesn't mean it will find its way to the shelf. Misplaced stock or slow replenishment can still be a significant factor in determining availability levels.

The danger of relying on balance on hand alone for on-shelf availability

Balance on hand is a powerful signal for on-shelf availability, but it is only one part of the overall puzzle. A high balance is meaningless if the product hasn't been moved from the backroom to the shelf. Solely relying on inventory system data for replenishment can lead to:

• Revenue loss: Empty shelves despite a positive balance.
• Over-ordering and waste: System-triggered replenishment despite hidden stock.
• Wasted labor: Associates spend time searching for items that are either misplaced or only exist in the system.
• Customer churn: Shoppers switch stores or brands after repeated disappointments.

Manual audits and cycle counts are too slow, too infrequent, and too prone to error, making it difficult for retailers to catch issues in time.

To reduce the risk of shelf issues, a better feedback loop is needed. And that means continuous shelf visibility - only possible with shelf intelligence solutions.

How shelf intelligence improves on-shelf availability and inventory accuracy

Shelf intelligence closes the gap between what systems report and what shoppers see, providing retailers with the visibility to act before a sale is lost. It does this by:

• Capturing true shelf conditions through hybrid data capture (mobile, fixed cameras, and robots), adaptable to store formats and frequency needs.
• Analyzing shelf data and delivering prioritized alerts so associates know which out-of-shelf events matter most (e.g., high-margin or high-velocity items).
• Identifying phantom inventory by surfacing mismatches between the balance on hand and availability.
• Improving inventory accuracy over time by preventing the buildup of undetected stock errors and refining forecasting.

By consistently scanning shelves every day, store associates can catch inventory system errors as they happen and update the system, reducing the lag between when stock is missing and when it’s replenished.

This continuous, accurate feedback loop not only increases OSA, it minimizes inventory errors and phantom stock, ensuring the system reflects what’s actually on the shelf. Over time, this prevents the accumulation of undetected system errors and continuously improves inventory accuracy.

Bonus benefits from improved on-shelf availability

The impact goes beyond increase in sales: when on-shelf availability and BoH are in harmony, customers trust that products will be available when they want them, suppliers see you as a reliable partner, competitors can’t lure customers away based on stock, associates work more efficiently, and management teams can make better, data-driven decisions for demand forecasting, reordering, and more.

In practice, AI-powered shelf intelligence, like Scandit’s ShelfView, yields quick results and tangible benefits:

Key takeaway

Shelf intelligence doesn’t replace balance on hand; it makes inventory accurate where it matters most - on the shelf.

The relationship between on-shelf availability and balance on hand is more than an operational nuance; it’s retail’s most expensive disconnect. Closing the gap requires moving beyond system records to seeing reality as it happens.

Accurate balance on hand, along with visible shelves, equals revenue and trust.

Without both, you can’t deliver on either.

Shelf intelligence you can trust

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