6 Ways to Prevent Backorders for Increased Sales in 2023
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.
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.
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.
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.
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.
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.
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:
- Communicate with your fulfillment partners
- Use a modern warehouse management system
- Leverage real-time data
- Use forecasting with your warehouse management system
- Invest in proper training your employees properly
- Manage and update all your order channels
Hopefully, this was helpful. Best of luck with dealing with backorders.
For more information related to the topic, visit this section.
A backorder refers to items that are currently not in stock but promised to ship once available. This allows your customers to purchase a product now and receive it later, when available.
Backordering in materials management refers to the process of taking orders for products that are not available in the warehouse. The customers place an order for an item that is temporarily out-of-stock or has been discontinued.
When a product is on backorder, it means that the item is temporarily unavailable and the supplier needs to restock it. You can still place an order, but it won’t be shipped until the item is back in stock. The estimated time for restocking may vary, so it’s best to check with the supplier for an estimated delivery date.
A partial backorder occurs when a customer places an order for multiple products, but one or more of the products are temporarily unavailable. In this situation, the customer may have the option to receive a partial shipment of the available items, with the remaining items shipped when they become available.
“Available on backorder” means the product is not in stock, but you can still order it. The supplier will restock and ship it to you once it’s available. Check with the supplier for an estimated delivery date as the restock time may vary. So go ahead and order, your item is on the way!
There are several ways to prevent backorders, including communicating openly with your fulfillment partners, using a modern warehouse management system, using forecasting alerts, properly training your employees, and managing your order channels.
A rolling backorder is a type of backorder that occurs when a customer places an order for a product that is out of stock, and the retailer continues to push the estimated ship date back in time. This means that the ship date for the backordered item is constantly moving or “rolling” further into the future.
Backorders can lead to frustrated customers and a decrease in brand loyalty. Customers may choose to purchase similar products elsewhere or cancel their order altogether.
While some situations, such as unforeseeable circumstances or events, may be unavoidable, implementing best practices and efficient processes can greatly reduce the need for backorders.
Communication is crucial in preventing backorders. By openly communicating inventory stock levels and velocity times with your supply chain partners, you can keep stock levels steady and avoid buffer stock or excess stock.
The length of time it takes for a backorder to be fulfilled can vary depending on a variety of factors. These may include the availability of the product, the manufacturer’s production schedule, the shipping method chosen by the retailer, and any unexpected delays in the supply chain.