Backorders: Meaning, Causes and How To Manage Them

As e-commerce evolves, the reality of inventory shortages remains a challenge for many businesses. Despite best efforts to maintain stock levels, disruptions in supply chains or sudden spikes in demand can lead to products going out of stock. With approximately 34% of businesses having reported that backorders account for more than 10% of their total orders, effectively managing backorders can convert these potential sales losses into opportunities for customer engagement and retention. Here’s how you can excel in handling backorders and keep your customers satisfied even when immediate fulfillment isn’t possible.

What is a Backorder?

A backorder occurs when a product is temporarily out of stock but is still available for purchase on your website. Customers can order the item, and it will be shipped once it becomes available. This approach differs from an “out of stock” status, where the product is unavailable for order until restocked. Backorders ensure that you don’t miss out on sales and maintain customer interest, even when immediate product fulfillment isn’t possible.

Backorder vs. Out of Stock

Backorders: Customers can place orders for future fulfillment. This setup keeps the sales pipeline active and maintains a connection with the customer. Out of Stock: Sales halt as the product cannot be ordered until it’s back in stock, potentially driving customers to competitors.

Causes of Backorders

Backorders can arise from various situations, including:

Unexpected Demand: Events like media coverage, seasonal peaks, or endorsements by influencers can suddenly increase demand.

Supply Chain Issues: Delays from manufacturers, such as material shortages or production issues, can lead to inventory shortfalls.

Inventory Management Errors: Miscounts, misplacement, or failure to reorder on time can result in products going out of stock unexpectedly.

Managing Backorders Effectively

Handling backorders requires more than just allowing customers to place orders for unavailable items. It involves strategic planning and excellent communication to ensure customer satisfaction and operational efficiency.

Pros of Backorders

Guaranteed Sales: Products are sold even when they’re not physically available, ensuring continuous revenue flow.

Customer Data Acquisition: Every backorder provides valuable customer contact information for future marketing and sales opportunities.

Market Insights: Backorder trends help predict which products are likely to be in high demand, aiding in better inventory planning.

Cons of Backorders

Customer Impatience: Delayed gratification can lead to customer dissatisfaction and cancellations.

Operational Challenges: Managing backorders requires robust systems to track and fulfill orders efficiently without errors.

Increased Customer Service Demands: Higher volumes of customer inquiries and potential complaints regarding delays.

Strategies to Enhance Backorder Management

Clear Communication: Always inform customers about expected wait times upfront and keep them updated on their order status.

Cross-docking: Cross-docking involves transferring products directly from incoming to outgoing trucks without storage in between, significantly speeding up order fulfillment for backordered items.

Segmented Inventory: Keep a portion of your inventory reserved specifically for fulfilling backorders, ensuring that customers face minimal delays.

Tips for Minimizing Backorders

To reduce the frequency and impact of backorders, consider the following strategies:

Safety Stock: Maintain a buffer stock to accommodate unexpected spikes in demand.

Reorder Points: Calculate and establish reorder points based on sales velocity and lead times to ensure timely restocking.

Diversify Suppliers: Have multiple reliable suppliers to reduce dependency on a single source.

Regular Inventory Reviews: Keep a close eye on inventory levels, especially for high-demand items, to adjust orders proactively.

3PL Center: Your Strategic Partner in Managing Backorders

At 3PL Center, we understand the challenges and opportunities associated with backorders. With our advanced Warehouse Management System (WMS), extensive storage solutions, and expert logistics support, we are equipped to handle backorders efficiently, minimizing the impact on your business and your customers.

Our Comprehensive Offerings:

Advanced  Inventory Management: Our WMS features sophisticated tracking and forecasting tools that help prevent stockouts and manage backorders effectively.

Strategic Warehouse Locations: With multiple facilities across strategic locations, we ensure quicker fulfillment times, even for backordered items.

Cross-Docking Capabilities: We offer cross-docking services that reduce the time between receiving a backordered item and shipping it out to the customer.

Dedicated Customer Support: Our team is always on hand to assist with any queries or issues, ensuring a smooth experience for your customers.

Backorders: Key Takeaways

While backorders can be challenging, they also offer an opportunity to demonstrate your commitment to customer service and your ability to manage disruptions effectively. By partnering with 3PL Center, you gain access to a range of tools and services designed to optimize your inventory management and keep your customers happy, even when delays are unavoidable. Let us help you turn potential challenges into opportunities for growth and customer loyalty. Embrace the future of e-commerce with confidence, supported by the expertise and resources of 3PL Center. Together, we can ensure that every order—whether immediate or backordered—is a success.

Backorder FAQs: 

Can customers cancel a backorder, and if so, how?

Yes, customers can typically cancel a backorder if the item has not yet been shipped. To cancel, customers should be able to use the e-commerce platform’s customer service portal, contact customer support directly, or respond to a confirmation email. It’s important for

What are common strategies to reduce the impact of backorders on customer satisfaction?

Effective strategies include setting clear expectations about shipping times on product pages and during checkout, offering incentives like discounts or free shipping on future purchases for the inconvenience, and maintaining open lines of communication through order updates. Additionally, allowing customers to easily modify or cancel backorders enhances their overall experience and trust in the brand.

How can businesses predict and prepare for potential backorders?

Businesses can use historical sales data and trend analysis to forecast demand more accurately and adjust their inventory accordingly. Implementing an efficient inventory management system that alerts when stock levels are low can also help prevent backorders. Furthermore, establishing strong relationships with suppliers to ensure quick replenishment of popular items is crucial in backorder management.