What is Backorder? Complete Management Guide & Solutions (2024)

How disappointing it is when you like a product and it is out of stock? As a business owner, no one wants to lose customers when their desired item is out of stock. Well, there is a delightful solution where neither business owners nor customers disappoint.

It is to provide backorder products. Backorders can be challenging, and if you fail to do it rightly, then things could go even worse as there will be higher chances of losing your customers forever. So, are backorders appropriate for your business?

Let’s find out in this blog. Along with that, we will cover what does backorder mean, the causes of the backorder, how to know if an item is on backorder, and how to manage it efficiently.

What is Backorder?

A backorder is an item of goods or service that is currently unavailable but can be delivered once it is back in stock in the supply inventory. In simpler words, the order will be delivered once it is back in stock.

Moreover, the back order items are purchase orders that will be fulfilled but delayed. The items are under production or still available from the distributor side. 

How does it work?

Backorders occur when there are sudden demand fluctuations or problems with an inventory management system. The orders in backorder inventory can be produced but it will slow down the entire supply chain process. 

Let’s understand it with an example: 

Sony Playstation has a huge fan base, and in 2022 when they announced the release of PS5 after a long time, people have gone gaga over it. Also, because of that, there was a massive demand for it. So, whenever people want to place an order, they see currently unavailable (backorder).

Sony has not stopped production nor was able to fulfill the customer demand immediately. But they never halted its production. 

What are the Causes of Backorder?

The following are the causes of backorders in your supply chain. 

1. Unexpected rise in demands 

When any products or services get viral and are noticed by customers unexpectedly, that leads to unusual demand. It happens when an event takes place; for instance, a big influencer like Ronaldo talks about it, or your product appears in a TV show.

Also, it is possible when your advertisement works and there is a storm about the products or services. In such a situation, the supplier is prepared, but unsure of the date. 

2. Low inventory stock 

As a business owner, you should know that not all forecasts on stock will be right. So, they do not keep excess inventory because of wastage. Hence, low safety stock is another cause of backorder. Also, inventory stock will increase warehousing costs as it becomes a challenge to maintain it.

3. Unavoidable human mistakes 

Humans tend to make mistakes and we cannot agree more. It is also one of the reasons for backorders as being human we can give inaccurate results. For instance, 500 goods are produced thinking it would be enough. But it turns out, you require more to fulfill the customer demand.

4. Problem on manufacturer side

Manufacturing business is a circle where everyone is dependable and requires something. Sometimes, during production, a communication problem arises between the supplier or manufacturer.

Let’s take the 500 goods example again, you find just in time that there is a supply chain disruption problem.  As there is a lack of communication, you will not be able to deliver it to the customers on the expected date. Thus, supply chain issues from the manufacturer side can affect your retail fulfillment process. 

5. Production delays 

As mentioned earlier, any incident can take place unexpectedly. Sometimes due to that reason, there will be delays in production. Also, the cycle continues and you would not be able to provide that item to the customers. 

Many times because of a lack of raw materials there will be delays in production. Once the delay in production comes up, fulfilling product demand gets difficult. For such situations, you can be in contact with more than 2 suppliers who can help you to fulfill the purchase order.

With optimized product listing and pre-order system, you can minimize warehouse management discrepancies.

How to Manage Backorders

Managing backorders is essential for every business. Because if you cannot stick with the efficient services, no customer would like to continue with you. So, let’s understand how to manage backorder like a pro following these below tips. 

1. Ensure no communication gaps

In backorders, you need to update customers about every process. No matter what business you are in, there is high competition in everything. If you are not providing anything, the customer will leave and search for another in a minute. 

Therefore, if a customer is keeping patient with you in backorders, acknowledge and update you about the deliveries. Send them an email or text message about the inconvenient delay in the order. If the person does not respond, ask your salesperson whether they have any issues with it. Ultimately, It will also improve customer satisfaction.  

2. Set reorder points

It is used when there is a minimum quantity of any SKU that businesses need before approaching for more products from their manufacturer. It is easy to calculate the reorder point, just add lead time demand and safety stock of the particular day. 

Many e-commerce providers use technology to calculate reorder points for every product. It also helps them to get updates about inventory, warehouse stocks, backordered products, and their estimated delivery date. 

3. Accurate inventory forecasting 

By having an accurate forecast about availability stock in the inventory management systems can help to not disappoint customers and suppliers. By calculating backorder rates, you will know how much stock you need or are there any excess stock in your warehouse.

Effective inventory management software is important for the smooth processing of eCommerce businesses as it streamlines order management and minimizes backorder situations, ensuring that raw materials and backordered items are always readily available.

Also, it will help you to keep updated about the out-of-stock item. In addition, forecast when you have all the information otherwise the estimation will be wrong. 

Below is the formula to calculate backorder rates:

4. Approach more suppliers

Every business is dependable, but it would be wrong to depend on one supplier for the entire chain. For example, you had one supplier for thread raw material, and if that supplier tells you that they cannot provide it, then your sales order will get affected. 

Thus, it is ideal to have an approach of 3 or more suppliers, so your business does not get affected. To keep your supply chains working, ensure that you have diverse suppliers to continue work. You can approach them either using social media or directly through phone.

Advantages and Disadvantages of Backorders

Like every business, there are upsides and downsides to backorders. Let’s find out how it affects your consumer demand for changes in inventory levels. 

Backorder advantages 

• With backorder fulfillment, you can achieve customer trust and surge in sales orders because of high demand and ultimately provide an exceptional customer experience.

• As the backorder item will be directly shipped to customers, there will be sufficient storage space.

• Backorder helps companies to decrease warehouse management expenses and enhance backordered product value. 

• Backorder process allows the company to optimize massive stock levels in their inventory and reduce extra costs. 

Backorder disadvantages 

• With high competition, you might lose your business to competitors. It is because they offer services that you are unable to do.

• Not every customer has the patience to wait and prefers not to purchase or choose from the product page of your website.

• If you are not able to provide items on the given particular date, then it will leave a negative impression on your business.   

• Backordered items affect the process of payment as well as your developed customer base. 

Deliver Your Backorder Products on Time Using Upper

The reason for backorder products is mainly late deliveries or failed deliveries. No worries, Upper has got you covered with its route optimization efficiency.

With optimized product listing and pre order system, you can minimize warehouse management discrepancies. Upper uses that list to plan and optimize delivery routes.

Route planning software allows you to schedule routes in advance, so if you have numerous orders, it ensures you deliver on time. Moreover, if there are more last-mile deliveries, Upper helps to achieve your target in minimum time. 

If any driver is unavailable, you can easily reassign it to another driver using this delivery fulfillment solution. In addition, you can prioritize customer orders by setting priority on deliveries. A route optimizer tool makes sure your product is handed over to your client with delivery proof to confirm successful delivery.

Conclusion 

It is understandable that backorders could make or break your business brand image in market insights. So, communicate well in order to win customers’ satisfaction with your service. Also, ensure that you are notifying customers about it.

In addition to that, sending customized notifications becomes easier with Upper. The automated notifications will help you to keep the customers about the delivery status and ETAs. Moreover, it is useful for both the delivery person and customers as it helps them to know about the delivery operations.

Why don’t you experience it by yourself? Try a 7 days FREE trial and avail the route benefits.