What is a Backorder and How to manage It?

What Is a Backorder?

A backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply. The item may not be held in the company’s available inventory but could still be in production, or the company may need to still manufacture more of the product.

The backorder is an indication that demand for a company’s product outweighs its supply. They may also be known as the company’s backlog.

The nature of the backorder and the number of items on backorder will affect the amount of time it takes before the customer eventually receives the ordered product. The higher the number of items backordered, the higher the demand for the item.

What does backorder mean?

An item on backorder is an out-of-stock product that is expected to be delivered by a certain date once it is back in stock. Businesses will often still sell products on backorder with the guarantee to ship them to the buyer once their inventory has been replenished.

Backordering an item means the shopper can buy the item now and receive it at a future date when the item is in stock and available. When an order contains a backordered item, it can’t be packed and shipped immediately given the lack of physical inventory at the time.

If there are other items in the same order that are in stock, the order may be split and shipped at different times, with the backordered items being shipping at a later date.

Backorder vs. out of stock

Out of stock means that a product does not currently have any inventory available and does not have a date for resupply, while ‘backordered’ implies there is a determined date for products to arrive.

It’s the difference between “This item is currently unavailable” and “This item won’t ship [until 2 weeks from now, for 10 business days, etc.].” In other words, there is hope in the foreseeable future with a backorder. It might take a while, but you will receive the product.

When a product is ‘out of stock,’ there’s a chance that’s the case permanently, or at least will be for so long that the seller can’t predict when they will have it again.

How to manage backorders?

  1. Anticipate order demand. Sometimes it’s easy to forecast when an item will be in high demand. Swimwear will always be popular in the months leading up to summer while individuals begin shopping for school supplies toward the end of summer. Prepare for situations like these by having extra stock readily accessible. However, you might encounter an unexpected spike in demand. Having a backorder process in place will ensure efficiency when faced with an unanticipated increase in orders.
  2. Diversify between multiple suppliers. By working with two or three suppliers who offer similar products, you can cut down your chance of backorders. Even if one supplier runs out of a specific item, you may be able to order from another warehouse, potentially reducing a customer’s wait time. However, the cost may increase per supplier as the volume is reduced.
  3. Update product pages for backordered items. Keep customers updated when a product is backordered. Edit the product page to include information on how your backorder process works and when customers can expect to receive their order. Transparency is essential to maintaining a strong brand following.
  4. Provide incentives. If you have a backorder on certain products, but they’re available on competitor sites, shoppers may take their business elsewhere. Offer an incentive to purchase from you, even if it means a longer wait time. Options you can consider are free shipping or a gift.
  5. Ship products separately. Customers can place orders containing both backordered and in-stock items. Ship available products to them right away and mail the backordered ones once they’re available. Note: This involves two separate shipping costs.
  6. Keep customers updated. Make sure your customers are in the loop throughout each step of the way. Send emails to them when the item is back in stock, when it ships, and if they should expect additional delays.
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How to Avoid Backorders and Optimize Stock Levels

When a company, particularly an eCommerce company, takes a backorder, they are saddling the customer with a delay. That delay can last days or even weeks. (For some concrete examples of the problems that backorders create, see our article on The First Rule of Inventory).

Backorders are bad, plain and simple. But how do you avoid backorders and optimize your stock levels?

Get Real-Time Data on Your Stock Levels

The first step to avoiding backorder situations is getting a system in place to accurately track inventory in as close to real-time as possible. Integrating your warehouse inventory systems with the latest scanner technology and getting real-time alerts will help you avoid stock and backorder issues.

There cannot be a whole day’s delay, between when you actually run out of items and when you discover this fact.

Get Real-Time Data on Item Velocity

It is not enough to know stock levels in your warehouse; you have to know how fast items are moving, too. It’s part of your inventory needs projections. For example, you might have less than 25% of your original stock of an item, but if that item is moving slowly, you might not have to reorder for some time.

Conversely, a fast-moving item might need to be ordered while you still have many items in your warehouse inventory to prevent a backorder situation. Thus, velocity matters more than absolute levels.

Have the System Make Predictions

Once you know how quickly items are moving, you should be able to forecast when they will be depleted (also called needs projection) and compare this timeline to how long it takes to restock. For example, suppose it takes about three weeks to get a restock of item X from your supplier.

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You now know to set up a trigger in the system so that when the inventory in your warehouse reaches the point where there roughly a month’s volume remains, a reorder is automatically triggered. The new items should arrive just in time to avoid having to flag orders as backorders.

Create a System that Triggers Appropriate Actions

Knowing when you are going to run out of stock is not enough. Have the alert trigger the appropriate reaction: a reorder from a vendor or an internal work order. Build in time for receiving, quality control, and put-away as well. Actions should also trigger if items are not received within the expected time frame.

Keep All Order Channels Updated

All of your order channels and shopping carts will need to be kept aware of your inventory levels. This not only signals item availability to the customer, but it can also spur them to buy now; “Only 4 remaining in stock…” instills a sense of urgency. The whole process can be automated if you have the right order channel integration with a wms.

Have a Back-Up Plan

Sometimes, even with the best of intentions and the most careful plans, you run out of inventory. There are many causes: A vendor could go bankrupt or have its shipments tied up in customs. Shipments to your facility could be delayed due to weather.

Or an item might no longer be manufactured by your usual source, forcing you to find another. For all these kinds of situations, it pays to have a backup plan—for example, using a back-in-stock alert plugin.

FAQs.

What does it mean on backorder?

A backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply. The item may not be held in the company’s available inventory but could still be in production, or the company may need to still manufacture more of the product.

How long is backordered?

Though it depends on the company and product, backordered items generally take about 14 days. The customer pays for the item, and then the company or supplier is responsible for keeping them updated on the delivery timeline.

What happens when something is backordered?

Backordering an item means the shopper can buy the item now and receive it at a future date when the item is in stock and available. When an order contains a backordered item, it can’t be packed and shipped immediately given the lack of physical inventory at the time.

How do I backorder?

Backordering – How to master it

  • Recording all your sales orders with items on backorder.
  • Place a purchase order for these backordered items with your supplier.
  • Once it arrives, search through your sales orders to match these to the correct purchase order.
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How should a back order be handled?

7 Tips for Online Retailers to Handle Backorders

  • Don’t process payment until the order can be filled.
  • Offer to partial ship a larger order.
  • Update your website promptly.
  • Consider a consolation offer.
  • Encourage open conversation.
  • Evaluate your inventory system.
  • Evaluate the timeframe of the backorder.

What is backorder cost?

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.

Why are there so many backorders?

Supply chains break down. Weather or natural disasters can hold up transportation. In 2020, the pandemic has disrupted global manufacturing, creating shortages and delays for many companies. Combine that with a surge in eCommerce shopping, and backorders are inevitable.

Are backorders bad for the business?

If products are perishable or easily damaged, disruptions in backorders can lead to more spoilage or damage, harming revenue potential. Ecommerce backorders also increase the need for space as companies try to manage fulfillment.

What is the difference between backlog and backorder?

As nouns the difference between backlog and backorder is that backlog is an accumulation or buildup, especially of unfilled orders or unfinished work while backorder is an order that cannot be currently filled or shipped, but is requested nonetheless for when the item becomes available again.

What does backorder on way fair mean?

Backordered. We’re sorry, but we ran out of stock before we could fill your order. Your item will ship as soon as it is back in stock. Cancelled.

How do you tell a customer about a backorder?

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 is news, we will inform you!

What does target backordered mean?

‘Backordered’ means there’s a delay on your order because an item is temporarily out of stock. The item will ship as soon as it’s in stock.

What is the difference between pre order and backorder?

Speaking of a preorder, the goods are yet to be produced or manufactured. It assists businesses in planning the sales and supply of new items whose needs are pent-up. As for a backorder, the goods are already out there, yet not in stock at that moment.

Is a large backlog good?

A healthy backlog which may seem stressful is actually a good thing. Simply put, the bigger the backlog, the better. It’s when deadlines, as in the example above, are missed that the backlog turns into back orders. Again, back orders are bad.