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Backorder is a term that means your desired product is out of stock and will be back in at a later date. This may happen because the products are being replenished or it could have been an item that was just purchased by another customer.
As an ecommerce business owner, you've probably experienced a backorder before. Backorders happen when your product is temporarily out of stock and customers are given the option to wait for it or cancel their order. But what does this mean? And more importantly, how can you avoid them?"
Backorder: Definition
A backorder is an item that is currently out of stock but is still available on the item page. Instead of processing and shipping out immediately, delivery is guaranteed once accessible and an estimated date is usually supplied. This date is generally rather close, as permitting backorders implies that it will be back in stock within the relatively near future.
What exactly is the point of allowing these orders? For starters, it increases customer satisfaction (at least, if you ship out within a reasonable time) and it allows you to keep sales going, even if stock is a little slow. However, there are also a variety of other benefits that can pop up depending on how your store is run, your company goals, customer experience, etcetera.
Backorder Vs. Out of Stock
One of the biggest questions usually asked about backorders is “What’s the difference between that and out of stock?” The answer is actually pretty simple. “Out of stock” means an item has no stock available for purchase and also has no current date for resupply, while 'back ordered' means an item is currently unavailable but already has a resupply date on the horizon. Unlike stock items, back-ordered items will eventually come back. It may take some time but they will eventually show up, whereas, with the other, there’s never any certainty about when or if they will.
Backorder refers to an item unavailable but can be purchased on pre-order. A customer may order this product despite its lack of availability in stores or warehouses because it will eventually become available after it has been manufactured or restocked. A back-ordered item indicates that stock will soon arrive, and customers are willing to wait for their delivery before they can use their purchase.
On the other hand, "Out of Stock" means that an item isn't even available for pre-ordering, as there is no current prospect of future availability either from manufacturers or wholesalers — meaning until further notice from manufacturers or wholesalers about potential restock supplies; these items are technically not available in any store or warehouse at all. In contrast with Backorders, where certain things have an expected timeline for re-availability, "Out Of Stock" implies indefinite delay with uncertainty over when a product might become available again - it could be sooner (with enough demand pushing manufacture) or later (if you need a new shipment).
As far as comparing backorder vs. "out of stock," there're some distinct ways in which they differ:
• Availability: With Backorders, you know whether/when your orders can be fulfilled, while "Out Of Stock" doesn't provide much clarity regarding prospects of future availability, i.e., if ever!
• Wait Times: Unlike "Out Of Stock," where one may wait indefinitely for potential restocks —Backorders usually come with some forecasted timelines within which these orders might get delivered eventually, i.e., one knows more certainly how long they would need to wait and plan accordingly.
• Costing & Purchasing Experience: With BackOrders, customers pay the total amount when ordering, while buying something Out Of Stock involves nearly zero costs upfront since such orders cannot be processed until re-supplies arrive (if ever!). The purchasing experience also differs starkly under both scenarios since OutofStock situations don't offer customers too much control over choice & selection besides waiting patiently till stocks return. In contrast, one does buy according to tighter selection criteria during ideal times and save money when shopping through deals associated with back-ordered items compared to OutOfStock products!
Learn More: What Is The Difference Between Out-of-stock And Backorders?
Consequences of Not managing inventory Properly
Failing to manage inventory properly can have severe and long-term consequences on your business. Proper inventory management is essential for any company since it helps provide insight into what products are selling, how much of each product customers need, and when stock needs to be replenished. When not managed correctly or neglected entirely, numerous issues can occur, such as out-of-stocks, overstock situations, inaccurate forecasts, inadequate pricing strategies, and more.
Out of Stocks
Maintaining adequate inventory levels can lead to frequently being out-of-stock with vital products that your customers want or need. This can damage customer loyalty and result in sales losses due to unhappy customers going elsewhere for their needs. Stocks also lead to increased restocking fees, delivery charges, etc., causing unnecessary expenses that could have been avoided through better stock management practices.
Related: What Are Stockouts, And How Do They Affect Your Business?
Overstocks
Contrarily, too much inventory creates problems like tying up valuable working capital in excess goods rather than investing cash into high payoff items such as new marketing campaigns or hiring staff members who'll actively increase sales figures. Furthermore, too much stock sitting on shelves runs the risk of getting damaged or becoming obsolete, resulting in even more needless expenditures by having to write off these items from your balance sheet at the end of the year, leaving you with a loss instead of an income gain for all that hard work you put in!
Inaccurate Forecasting
Forecasting will ultimately lead to either overstock or out-of-stocks, depending on which way the forecast error skews your data model's results. Inaccurate forecasts will prevent companies from seeing actual demand patterns enabling them to make timely decisions about ordering only those goods needed by their customers while avoiding unwanted backorders or surpluses due to both costing time & money down the line when corrections must be made as soon as possible!
Inadequate Pricing Strategies
Without accurate records tracking past sale prices & volumes, it becomes difficult, if not impossible, for retailers to calculate appropriate pricing strategies based on historical trends & customer preferences, thus leading to an inability to compete successfully against competitors using targeted discounts & special offers which may otherwise drive away potential shoppers seeking savings elsewhere!.
Causes of Backorders
Backorders occur when companies cannot fulfill customer orders for various reasons. Some of the most common causes of backorders include inadequate inventory and capacity, slow lead times, late shipments, poor supplier performance, pricing errors, and product defects.
Inadequate Inventory and Capacity
Companies may find themselves in a situation where they need more stock to meet customer demand. This could be due to growth that outpaced forecasts or insufficient production capacity to stock shelves quickly. This inventory shortage results in backorders, as customers need more time to purchase the items they want.
Slow Lead Times
Companies often require long lead times for specific products, which can create backorders if there is strong demand for those items. Suppose companies don't anticipate potential surges in demand caused by seasonality or special promotions. In that case, they need help to keep up with supply, resulting in backlogs and backorders for customers trying to purchase these items during peak periods.
Late Shipments
Late shipments from suppliers can cause production delays, resulting in back ordering if products don't reach warehouses on time - this is particularly true with seasonal items where keeping supplies ahead of anticipated demand is essential but complex, especially when faced with delayed deliveries from suppliers who are already struggling with their backlogs due to high seasonal volumes received from all their other customers as well!
Poor Supplier Performance
Poor supplier performance can directly impact overall delivery timelines causing longer than expected lead times and resulting in unfulfilled orders leading ultimately to backlogs that may take weeks or even months before being cleared out - this will result in some level of customer dissatisfaction due to limited access either temporarily or permanently depending on how fast the issue is addressed!
Pricing Errors
While rarer than other causes of back ordering, pricing errors occasionally occur, causing orders not to be fulfilled because prices listed were wrong – this happens mostly when dealing with complex pricing structures such as discounted bundles or discounts based on credit cards used, etc. The key here is triple-checking any discrepancies between what was shown online versus what's listed on invoices sent internally, so everyone's aware of any changes, thus minimizing chances for misunderstandings / incorrect calculations down the line leading into costly (and potentially embarrassing) mistakes like price adjustments at later stages (which nobody wants!).
Product Defects
Suppose a product has a defect that affects its usability. In that case, it won't ship correctly until getting fixed, thus resulting in prolonged wait times, mainly if replacement parts need to be sourced externally. While rarely seen nowadays since QC processes usually catch many issues earlier "in process," it remains one more potential source of frustration & financial losses should these problems go undetected until reaching the consumer's hands.
Related: Backorders vs. Out of Stock- Things to Know About Keeping Items Available
4 Tips to Limit Backorders
While backorders are irritating and sometimes unavoidable, there are ways to help you decrease their probability of happening. Here are a few:
1. Set security stock
Give a valiant effort to fulfill requests and orders by setting a stock point that is sufficiently high to cover any provider issues or demand increases that come your way. Keep an abundance of stock available and be proactive in restocking, and you should run into far less backordering. Setting a security stock level is an essential component of running a business. By ensuring you have an adequate supply of stock, you can protect yourself from supplier issues or unanticipated demand increases. This security stock point should be set high enough to cover any sudden changes in requirements and prevent any backordering. Being proactive in restocking also guarantees your customers will always have access to the products they need, when they need it.
2. Figure and set reorder focus
Figuring out and setting the right reorder point is an important task for any business. The reorder point acts as a reference mark, indicating when it's time to order more of a given item. The formula for calculating this can be derived by adding the lead time demand of any SKU to your safety stock in days. This allows you to identify the inventory level that needs to be maintained in order to guarantee there is always enough stock available when needed.
3. Keep an eye on popular items
Keeping an eye on the most popular items is essential for any business. Not all products you have in stock will have the same demand, so it's important to pay special attention to those that are selling at a faster rate. This way, you can easily spot when there is a need to reorder in order to prevent stock from running out. By keeping tabs on your inventory and being proactive with your reordering needs, you can ensure that your customers never run into any issues related to unavailable items.
4. Have several providers
Having multiple providers at your disposal is a smart move for any business. Diversifying your supplier network can bring numerous benefits, from the ability to source products from different locations to having more bargaining power when negotiating prices. Moreover, having various suppliers will ensure that there are always alternative options in case one of them runs into stock or quality problems. As the old saying goes, it's important not to put all your eggs in one basket and have backup plans should you ever need them.
Related: Amazon Carrier Facility Updates: Know What They Mean!
Conclusion
Backorders are a great way to keep sales going when inventory is low, but what’s the point? First off, it provides customer satisfaction and in turn makes you look like a reputable business. Secondly, backordering items means that your customers will be more likely to buy from you later on when they need something else because of how well you treated them during their first purchase.
If your business has been struggling with fulfilling orders because products have been scarce lately but aren't completely sold through yet, we can help! Our team at Simpl pick pack and ship will take care of all aspects of order fulfillment so that you don't need worry about anything other than growing your business. Leave us a message today.
Next article: 4 Easy Ways to Pick and Pack Orders
