Have you tried to order furniture in the last few years? If so, how long did you have to wait after you placed that order to receive your furniture?
Was it six weeks? Three months? More? We’ve heard it all in the last several years!
If you’ve experienced this, you’ve felt the pain of a backorder.
In the environment of instant gratification, backorders can be damaging to customer relationships and damage a brand's reputation. In this article, we’re talking about all backorders; what it is, what a backorder versus out-of-stock is, and how to minimize the impact.
What is a backorder?
A backorder occurs when an item that is ordered is not currently in stock, but a replenishment order has been placed and an expected date is known. This means a buyer can still purchase an item, but they won’t receive it until the stock is available.
Often, this means the customer will wait a longer time than average because they must wait for the warehouse or distribution center to receive the item, process it, and ship it to them.
Backorder vs. Out of stock
It’s easy to mix up the terms ‘backorder’ and ‘out-of-stock'. When a product is out-of-stock it means the product is unavailable and cannot be ordered by customers, while backorder indicates that a product is currently unavailable but can be ordered. Backordered items are unavailable at the time of order but are guaranteed to come back in stock on a predictable timeline.
How to minimize the impact of backorders
There are two main strategies for minimizing the impact of backorders, avoiding backorders altogether and coping with backorders when they’re unavoidable.
Two great ways to avoid backorders altogether are utilizing tools like demand forecasting and virtual warehousing. Demand forecasting is the process of making predictions of inventory needs for the future. One of the primary ways logisticians do this is to use sales data from previous years. This allows for the identification of seasonal trends which can be applied to upcoming years (check out our article about demand forecasting). Another way to avoid backorders is to take advantage of software features like virtual warehousing. This feature allows you to virtually allocate inventory to specific online marketplaces and create low-stock notifications to give you time to reorder before products are out of stock.
Sometimes backorders are unavoidable. Say one of your products unexpectedly goes viral on social media and demand soars, or a supplier is unable to provide their typical level of product. In these cases, offering your customers the ability to backorder products they want is a good option. This allows you to continue to bring in customers and revenue while providing the products they want (albeit slower than they’d like).
There are a few things businesses can do to maintain the customer relationship in the event backorders occur. First, splitting orders. This is a great strategy for orders with multiple products where products that are in stock will get shipped as normal. Then, the back ordered item(s) are shipped when they come in, allowing customers to at least receive some products in a timely fashion. The second recommendation is to reduce customers' costs in some way. Either giving a certain percentage off the total order or offering free or reduced shipping is a great way to build that relationship while your customer waits for their back ordered products.
Visibility is, of course, key to maintaining good relationships with your customers and keeping an eye on the possibility of backorders or products becoming out of stock. Check out ShipCaddie’s features here for an idea of the latest features available in inventory management software!