How to Reduce Backorders in 6 Ways (2023) | Fulfyld (2024)

Picture this: You have this highly praised product that is literally selling off the shelves! So much so that you keep selling right through your inventory each time you re-up. While this is somewhat good news for your company (because it is a sign that your products are in high demand), it is bad news for your customers.

Backordered items mean that your customers will have to wait longer (in addition to regular processing and shipping times) because the product they ordered is currently out of stock.

Having to wait on a product can easily turn an excited customer into a frustrated, angry customer rather quickly.

That same anger and frustration could cause a customer to purchase similar products elsewhere or cancel their order altogether.

While backorders are a good problem to have (to an extent), you want to avoid them at all costs to maintain customer satisfaction and brand loyalty.

So, in this article, you will learn what is a backorder, the benefits of backorders, and how to reduce them for online businesses.

Table of Contents

What is a Backorder? And What Does Backorder Mean?

A backorder refers to items that are currently out of stock but promised to ship once available. This is different from a stock out (when an item isn’t available in your warehouse). A backorder occurs when the retailer must make a request to the supplier or manufacturer for when the item becomes available again.

This process allows your customers to purchase a product now and receive it later when it’s available.

Backorders vs. Out-of-Stock

Backorders and out-of-stock items are both related to the availability of a product, but they are not the same thing. An item is considered out-of-stock when there is no more inventory available to purchase. This means that you cannot buy the product until it becomes available again.

On the other hand, a backordered item is temporarily unavailable, but more inventory is on the way. This means that customers can still purchase the product, but it will be shipped to them at a later date.

When an item is unavailable, it can be frustrating because there is no indication of when it will become available again. In contrast, backordered items typically come with an estimated restocking date, so buyers have an idea of when they can expect to receive your products.

Another difference between the two is that items not in stock may be discontinued, while backordered items are still in production.

In general, backorders are a better scenario than out-of-stock items because they offer the hope of getting the product in the future.

Backorders vs. Pre-Orders

While pre-orders and backorders may seem similar, there are some key differences between the two. Pre-orders are for products that haven’t been released yet, while backorders are for products that are already available, but just not in stock.

With pre-orders, your store can sell products that aren’t released yet, which can be really exciting! And with backorders, your buyers are essentially getting in line for the next batch of inventory.

One thing to keep in mind with pre-orders is that they often come with special bonuses, like exclusive artwork or bonus content. These incentives are designed to reward fans who pre-order and to create buzz around the product launch.

What Causes Backordered Items?

Ecommerce businesses experience backorders for a variety of reasons, including unexpected demand, production delays, and shipping issues. While they can be frustrating, they are often a sign of a product’s popularity and worth the wait. Let’s explore the top reasons that backorders happen.

Unexpected Demand

An unplanned increase in demand is one of the most common reasons for backorders. Sometimes, a product may become unexpectedly popular, and the demand exceeds the available inventory (even your safety stock). This can happen for a variety of reasons, such as a product going viral on social media or being featured in a popular TV show or movie.

Production and Supply Chain

When a manufacturer experiences a delay in the production process, it can impact the availability of their products. This can happen for several reasons, such as equipment malfunctions, supply chain disruptions, or labor shortages.

Shipping Issues Can Also Cause Backorders

Sometimes products shipped from overseas get held up in customs or experience other logistical challenges that delay their arrival. Even when products are shipped domestically, weather or other unexpected events can cause delays.

Advantages of Backorders

While backorders can be frustrating, they offer several advantages that are worth considering. Here are some of the benefits your business can experience when backorders occur.

Increased Sales

By offering backorders, you can continue to make sales even when inventory is low or unavailable, increasing revenue for your business. The beauty of backorders is that they give customers a way to secure the products they want, even if they’re not currently in stock. This means that customers don’t have to go to a competitor to find the product they’re looking for, and you don’t have to worry about losing sales.

Better Inventory Management

One of the biggest challenges that retailers and business owners face is managing inventory levels, like unavailable, available, and safety stock. Overstocking can tie up valuable cash flow and lead to excess waste, while understocking can result in missed sales and unhappy customers. That’s where backorders can come in handy.

By offering backorders, you can get a better idea of how much inventory you’ll need to order in the future, which can help you prevent overstocking or understocking. When customers place backorders for a product, you can use that information to gauge demand and adjust your inventory accordingly.

Happier Customers

Customers appreciate transparency and the ability to purchase products that are currently out of stock. By offering backorders, you can show customers that you care about their needs and want to provide them with the products they want. Backorders also give you valuable insights into customer demand and preferences. By analyzing backorder data, you can identify which products are most popular and which ones may need to be phased out.

Cost Savings

By avoiding the costs associated with excess inventory or rush ordering, you can reduce expenses and improve your bottom line. You will have the data you need to invest in high demand products and avoid products being temporarily unavailable without allowing buyers to still reserve them. This means you won’t miss out on sales, and only focus on products that drive profits.

How to Reduce Backorders in 6 Simple Ways

If you want to avoid backorders, you must communicate with your backorder fulfillment partner, invest in a modern warehouse management system and train your team on this software. Plus, Ecommerce businesses must also leverage real-time data, use sales forecasting and keep their order channels updated. Let’s discuss these methods in detail below.

1. Communicate with Your Fulfillment Partners

Effective communication is crucial to minimize backorders. By sharing current and average inventory levels and sales velocity with your suppliers, you can ensure a steady supply of products and prevent excess buffer stock. This means keeping the lines of communication open and being transparent about your inventory management and sales velocity.

Over-ordering or under-ordering can negatively impact your bottom line, so communicate with your suppliers to avoid these issues. Remember, effective communication is key to minimizing the need for backorders and maintaining a steady supply of products for your online store.

2. Use a Modern Warehouse Management System

A modern warehouse management system keeps you from manually having to record inventory data. With an automated inventory management system, you won’t have to guess when to reorder inventory, how much you need to order, or your safety stock levels. Your reorder points will be crystal clear by the demand for your products as your system will measure real-time data.

3. Leverage Real-Time Data

Ensure your warehouse management system tracks real-time data. This means that whenever there is a change in stock levels, your system will make note of this change and update automatically. Real-time analytics will keep you ahead of your sales orders, reorder points, and product levels, making maintaining stock easier. Plus, Ecommerce businesses can better manage backordered products so they can fulfill customer expectations.

4. Use Forecasting with Your Warehouse Management System

Another way to prevent backorder costs and supply chain disruptions with your warehouse management system is to put alerts in place that are able to forecast when products are running low and reorder. For example, modern systems allow you to set up a notification to be informed when inventory reaches a certain point so that it can automatically reorder and prevent any supply chain disruptions or backorders.

It is also essential to calculate how long it takes each item to restock. Doing this will help you prevent a backordered item and ensure you don’t have low or excess inventory.

5. Invest in Proper Training

Properly training your warehouse workers will help optimize inventory management. If an employee is not properly trained or they aren’t familiar with your warehouse management system, this could cause loads of errors, like incorrect customer orders or poor inventory management. These errors may cause dissapointment among your customers, so avoid them altogether and ensure your team knows how to use your inventory management system.

6. Manage and Update All Order Your Channels

Keep all order channels updated with accurate inventory data. You never want customers to try and order immediately only to find out the product is unavailable. Updating your order channels will ensure this doesn’t happen. Additionally, this helps create a sense of urgency for your products. For example, when a customer sees that there are only two or three of a certain product left, this will prompt them to go ahead and buy versus possibly missing out.

To Summarize

Backorders can be a major headache for online retailers, but there are ways to prevent them to wrap things up, these are the options we recommend exploring further:

  1. Communicate with your fulfillment partners
  2. Use a modern warehouse management system
  3. Leverage real-time data
  4. Use forecasting with your warehouse management system
  5. Invest in proper training your employees properly
  6. Manage and update all your order channels

Hopefully, this was helpful. Best of luck with dealing with backorders.

How to Reduce Backorders in 6 Ways (2023) | Fulfyld (2024)

FAQs

How to Reduce Backorders in 6 Ways (2023) | Fulfyld? ›

How to Measure Backorders. To calculate the backorder rate, divide the number of undeliverable orders by the total number of orders and multiply the result by 100.

How do I reduce backorders? ›

How to Reduce or Prevent Backorders
  1. Create an Accurate Estimate of Demand Using Past Purchasing Patterns. ...
  2. Work with Your Supplier to Track When Backordered Items Will Be Available. ...
  3. Increase Your Stocking Capacity. ...
  4. Diversify Your Suppliers, if Possible. ...
  5. Be Proactive about Communicating with Customers.

What is the formula for backorder? ›

How to Measure Backorders. To calculate the backorder rate, divide the number of undeliverable orders by the total number of orders and multiply the result by 100.

Why are there so many backorders? ›

Why Do Backorders Happen? Backorders occur for several reasons. On the supply side, a company may simply run out of a good due to supply chain issues, underestimated manufacturing capabilities, or lack of delivery to physical storefronts.

What are the examples of backorder? ›

The examples of backorder are as follows: Mr. A purchases ten buses from the dealer, but the dealer only has four buses in inventory, which he can deliver, and for the remaining six buses, Mr. A has to wait for 7 to 8 months as it takes the dealer 7 to 8 months to get it from the supplier.

How can I improve my backorder? ›

What does backorder mean?
  1. Anticipate order demand. Sometimes it's easy to forecast when an item will be in high demand. ...
  2. Diversify between multiple suppliers. ...
  3. Update product pages for backordered items. ...
  4. Provide incentives. ...
  5. Ship products separately. ...
  6. Keep customers updated.

What is KPI for backorders? ›

The Back Order Rate KPI measures how many orders cannot be filled at the time a customer places them. A high back order rate means your customers are forced to wait while you attempt to fill their order, which will adversely affect customer satisfaction and retention in the long term.

What is backorder cost model? ›

Backorder costs include costs incurred by a business when it is unable to immediately fill an order and promises the customer that it will be completed with a later delivery date. Backorder costs can be direct, indirect, or ambiguously estimated. As such, backorder costs usually involve friction cost analysis.

What is backorder in supply chain management? ›

A backorder is generated when an order can't be fulfilled at the time of purchase because the item is not in the seller's current inventory. However, the item is still in production or available from the distributor.

What is the perfect order rate? ›

Perfect order rate is a supply chain metric defined as the percentage of orders delivered to the right place, with the right product, at the right time, in the right condition, in the right package, in the right quantity, with the right documentation, to the right customer, with the correct invoice.

How do you tell a customer about a backorder? ›

Email - keep the customer up to date

Dear customer, still at least one of your ordered products is in backorder. We appreciate your patience and know you are waiting for the arrival. As soon as there are news we will inform you!

How long can a backorder last? ›

The timeline for backorders can vary from business to business, or even from order to order. On average, though, backorders last about 14 days.

What is the backorder rate of inventory? ›

When an item is on backorder, it means that the vendor is out of a certain item but expects to have it back in stock and delivered by a certain date. Backorder rate is the percentage of orders that cannot be delivered by the original date.

What is the impact of backorder? ›

An inventory backorder occurs when demand for a product exceeds the available supply. This can happen for various reasons, including high customer demand, production delays, or shipping delays. Backorders can have a significant impact on inventory control, as they can lead to stockouts and lost sales.

What are the features of backorder? ›

Items on backorder typically have a preset arrival date, while products that are out of stock generally are unavailable in a company's inventory for an unknown amount of time. Depending on a company's preference and manufacturer's status, items might remain out of stock permanently.

How do you communicate backorder? ›

When you find out that certain items are on backorder, communicating with your customers who bought those items should be your priority. Send an email or text message to customers who ordered the backordered item and inform them about the delay right away. Give them an option to reply to your email or message.

How can I improve my order delivery? ›

Top 10 Ways to Get Better Order Delivery Accuracy
  1. Evaluating current bottlenecks. ...
  2. Accounting for road conditions. ...
  3. Better labeling of goods. ...
  4. Proper packaging of goods. ...
  5. Streamlining the distribution system. ...
  6. Automation of warehouse processes. ...
  7. Integration of inventory management software. ...
  8. Driver training programs.
Jun 2, 2023

How can I improve my order system? ›

The following are some steps you can take right away to improve your customer order management services.
  1. Get Your Employees on Board. ...
  2. Sync Your Customer Order System to Your Inventory. ...
  3. Make It Useful to the Customer. ...
  4. Automate, Automate, Automate. ...
  5. Consolidate Order Channels.

What are the KPI for retention strategy? ›

Some common KPIs for customer retention include Customer Lifetime Value (CLV), Net Promoter Score (NPS), Repeat Purchase Rate, Customer Retention Rate, and Churn Rate.

What is the most important KPI inventory? ›

The most important inventory KPIs are the ones that offer insights into costs, turnover, demand, revenue, process, and supply chain efficiency. Brands can then use these insights to operate more efficiently and increase profitability.

What is the difference between backorder and shortage? ›

In economics, this is also called scarcity. In manufacturing terms, you can also call something out of stock or a stockout. A backordered item is simply a term given to a finished product in a shortage situation.

What is backorder in SAP? ›

You use backorder processing to track customer sales orders received for which the inventory has not yet been shipped. Normally, this occurs when the available quantity is insufficient to fill the order.

What is make to order supply model? ›

The make-to-order (MTO) strategy means that a firm only manufactures the end product once the customer places the order, creating additional wait time for the consumer to receive the product, but allowing for more flexible customization when compared to purchasing directly from retailers' shelves.

What is a backorder report? ›

Purpose: This is an aging report that shows you: • the number of orders that have not yet had any items shipped. • the number of orders that have already had one or more shipments and are still open.

Are backorders guaranteed? ›

Backorder vs Out of Stock

In both cases the items are unavailable, but items on backorder are guaranteed to come back in stock and be delivered at a later date, while out-of-stock items are not guaranteed to come back.

How do I backorder on hot topic? ›

You can purchase items listed online as backordered, and they will ship once they're back in stock. For sized items, you'll have to select your desired size for the website to reflect that it is backordered. International Shipping is not available for backorder items.

What is the formula for perfect order? ›

Perfect order performance is calculated as follows: (% on time delivery) multiplied by (% complete orders) multiplied by (% damage free) multiplied by (% accurate documentation) then multiplied by 100.

What are three characteristics of a perfect order? ›

Common benchmarks for a perfect order include on-time delivery, accurate documentation, correct order contents, product quality, and more. While Perfect Order rate provides a high-level overview of fulfillment performance, it doesn't always reflect evolving customer expectations.

Can you predict product backorders? ›

Existing works proposed different models to predict plausible future backorders in inventory management systems. Based on the types of techniques used, the predictive models can broadly be classified into two categories: i) Classical machine learning classifiers and ii) Deep learning-based predictive models.

How do you apologize for a backorder? ›

Here's what you should say: “We sincerely apologize for this inconvenience. We've experienced an unusually high number of orders and have run out of inventory.” Just be brief in the apology. Focus mostly on how to make things right, whether it's an immediate refund or links to similar products that are available.

Can backorder be negative? ›

From inventory control viewpoint, backorders are typically represented as negative values within the available stock. The available stock should not be confused with the stock on hand which represents the quantity of stock physically present on the shelf.

What is OTD in project management? ›

On time delivery, or OTD, is the metric used to measure supply chain efficiency. This KPI shows whether or not an organization is meeting its goals in regards to promised delivery times, and is critical for both measuring carrier performance and maintaining customer satisfaction.

What is backorder vs lost sales? ›

It is a backorder when the customer will wait for the stock to be replenished whereby the demand is subsequently filled. It is a lost sale when the customer does not wait for the stock to be replenished and drops the demand.

What are the benefits of backordering? ›

Backordering helps you retain your customer base and ensure that your sales are doing well even when you don't have much stock. It also benefits your business by reducing costs, reducing waste, increasing your product value, and allowing you to offer custom orders.

How long do backorders usually take? ›

The timeline for backorders can vary from business to business, or even from order to order. On average, though, backorders last about 14 days.

What are backorders in inventory? ›

Backordering is the process of allowing your customers to place orders even if you don't have sufficient stock on hand. Businesses implement backordering when a sudden increase in sales means that products are getting sold faster than they can be stocked.

What is the difference between backorder and backlog? ›

While related, backlogs and backorders are not synonymous. Backlogs are an accumulation of unfilled orders or unfinished work within the fulfillment and production planning processes. Meanwhile, a backorder is technically a backlog where the ordered product is currently out of stock.

What is the backorder cost? ›

Backorder costs are expenses you incur because you're unable to immediately fill an order. These costs can be direct or indirect. Common backorder costs include: Interest expenses.

How do you get customers to reorder? ›

One of the best ways to get customers to make a repeat order is to send emails based on their previous viewing history or items that align with their last order. For example, if a customer bought a laptop, sending them an email with related items such as laptop bags, anti-virus software, or peripherals would be ideal.

What are the consequences of backorders? ›

Backorders can have a variety of negative impacts on businesses, including delayed customer deliveries, increased costs due to additional handling and shipping fees, decreased customer satisfaction levels, and missed sales opportunities if the backordered item is no longer in stock.

What are the effects of backorders? ›

Backorders can have a significant impact on inventory levels and control. In some cases, they can result in a decrease in sales. In other cases, they can increase costs. In either case, it is essential to monitor backorders closely to ensure they are not negatively impacting your business.

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