Learn what backorders are, why they happen, and how to reduce them. Discover effective solutions for minimizing stockouts and keeping customers satisfied.
In the world of eCommerce, one of the more common yet frustrating experiences for both businesses and customers is dealing with backorders. While backorders can sometimes be inevitable due to unforeseen demand or supply chain disruptions, understanding what they are, their causes, and how to minimize them can help businesses better manage their operations and maintain customer satisfaction.
A backorder refers to an item that is out of stock but is expected to be delivered by a specific future date once inventory is replenished. Essentially, it allows businesses to continue selling products even when they do not currently have them in stock. For customers, this means they can place an order now, but must wait until the item becomes available again to receive it.
When an order contains a backordered item, it cannot be packed and shipped immediately. If other items in the order are in stock, they may be shipped separately, with the backordered item following at a later date. This approach allows businesses to maintain sales and keep customers engaged, but it also requires careful inventory management to avoid customer dissatisfaction.
Ideally, businesses aim to maintain enough inventory to meet customer demand. However, stock levels can fluctuate, and businesses sometimes run out of a product before replenishing their inventory. When this happens, a backorder is created when a customer places an order for an item that is temporarily unavailable but will be delivered once the stock is replenished.
While customers may be willing to wait for the backordered product, it's crucial for businesses to communicate the expected delivery date and keep customers informed throughout the process. Clear communication helps manage customer expectations and reduce frustration.
It’s important to differentiate between backorders and items that are out of stock. A backordered product is unavailable for immediate shipment but has a set restock date, meaning customers can expect to receive it in the future. On the other hand, an out-of-stock item has no known or guaranteed replenishment date, and customers may not be able to purchase it at all.
For businesses, backorders can provide a valuable opportunity to capture sales even when inventory levels dip, while out-of-stock items may lead to lost sales and potential customer churn.
Backorders can occur for several reasons, some of which are preventable and others that are out of a company’s control. Here are some common causes of backorders:
· Unusual Demand: Unforeseen spikes in demand due to seasonality, media appearances, celebrity endorsements, or new sales channels can lead to backorders. These situations can catch businesses off guard and deplete stock faster than expected.
· Low Safety Stock: Safety stock refers to extra inventory kept on hand to cushion against unexpected demand or supply chain issues. If safety stock is too low or miscalculated, businesses may run out of products and face backorders.
· Manufacturer or Supplier Delays: Delays from suppliers can be a major cause of backorders, especially if they run out of raw materials, face production slowdowns, or experience logistical challenges.
· Human Error: Mistakes happen, and sometimes backorders result from simple oversights, such as failing to reorder stock on time, miscounting inventory, or not updating the website to reflect current inventory levels.
· Inventory and Warehouse Management Issues: Poor inventory management practices can lead to discrepancies between actual stock levels and what’s available for sale, resulting in overselling and backorders.
· Long Lead Times: Delays between placing a reorder and receiving new inventory from suppliers can cause backorders, particularly if lead times are unpredictable or lengthened by supply chain disruptions.
Although backorders can be inconvenient, there are some upsides for eCommerce businesses:
· More Storage Space: Backordered inventory can be shipped as soon as it arrives, freeing up warehouse space for other products.
· Reduced Warehousing Costs: With less inventory to store, businesses may temporarily lower their warehousing costs, especially if they pay by volume or weight.
· Higher Product Demand: The popularity of an item on backorder can signal to other customers that it’s in demand, potentially boosting sales.
· Increased Cash Flow: When customers purchase backordered items, the business receives immediate payment, which can improve cash flow.
Despite the benefits, backorders can present challenges, including:
· Loss of Sales: Some customers may not want to wait for backordered items and may choose to shop with competitors who have the product in stock.
· Loss of Customers: Repeated backorders can frustrate customers, causing them to abandon the business altogether.
· Increased Resource Usage: Backorders often require additional customer service, communication, and logistics efforts, increasing operational costs.
1. Set Safety Stock Levels: Keep an appropriate level of safety stock to cushion against unexpected demand spikes and supply chain delays.
2. Establish Reorder Points: Implement reorder point systems that automatically trigger inventory replenishment before stock runs out.
3. Monitor Inventory Levels Regularly: Keep a close eye on fast-selling items and regularly review stock levels to avoid unexpected shortages.
4. Work with Multiple Suppliers: Diversify your supplier base to ensure a steady flow of products even if one supplier experiences delays.
5. Order More Product: If your business can handle it, ordering larger quantities can prevent stockouts and reduce the likelihood of backorders, though this comes with increased carrying costs.
Customers can easily switch to a competitor if they encounter backorders or delays in your store. Keep your customers informed about product availability, use email lists to notify them when items are back in stock, and set clear expectations about delivery times. Proactive inventory management is key to maintaining customer satisfaction and loyalty.
Partner with a reliable 3PL provider like Daguer Logistics to help you manage your inventory more effectively and minimize the impact of backorders. Let us assist you in streamlining your supply chain and keeping your customers happy with timely deliveries. Contact us today to learn more about our eCommerce fulfillment services!
