What Are Backorders?

Backorders are a common occurrence in the world of retail and e-commerce. But what exactly are backorders, and how can they impact your business? In this article, we’ll define backorders, explore the causes behind them, and provide solutions to help you manage backorders effectively.

What Are Backorders?

A backorder is an order for a product that is currently out of stock and not available for immediate delivery. This means that the customer has placed an order for a product that is not currently in inventory and will have to wait for it to be restocked before receiving it.

Backorders can occur for a variety of reasons, such as high demand, production delays, or unexpected inventory shortages. They can be frustrating for both customers and businesses, as they can lead to delayed shipments, lost sales, and dissatisfied customers.

Causes of Backorders

There are several common causes of backorders, including:

• High demand: When a product is in high demand, it can quickly sell out, leading to backorders.
• Production delays: If a product is manufactured overseas or has a long production process, delays can occur, resulting in backorders.
• Inventory shortages: Sometimes, businesses may underestimate demand or experience unexpected inventory shortages, leading to backorders.
• Seasonal fluctuations: Certain products may experience a surge in demand during specific seasons, leading to backorders.
• Human error: Mistakes in inventory management or order fulfillment can also result in backorders.

Impact of Backorders on Businesses

Backorders can have a significant impact on businesses, both financially and in terms of customer satisfaction. Here are some of the ways backorders can affect your business:

• Lost sales: When customers are unable to purchase a product due to backorders, they may turn to a competitor, resulting in lost sales.
• Negative customer experience: Backorders can lead to delayed shipments and dissatisfied customers, which can damage your brand’s reputation and result in lost future sales.
• Increased costs: Managing backorders can be costly for businesses, as it requires additional resources and time to fulfill orders and communicate with customers.
• Inventory management challenges: Backorders can make it challenging to manage inventory levels and accurately forecast demand, leading to potential overstocking or understocking issues.

Solutions for Managing Backorders

While backorders are an inevitable part of the retail and e-commerce industry, there are several strategies businesses can implement to manage them effectively. Here are some solutions for managing backorders:

• Improve inventory management: By implementing an inventory management system, businesses can better track inventory levels and accurately forecast demand, reducing the likelihood of backorders.
• Communicate with customers: It’s essential to keep customers informed about backorders and provide them with estimated delivery dates. This can help manage their expectations and prevent negative experiences.
• Offer alternatives: If a product is on backorder, businesses can offer customers alternative products or suggest pre-ordering to secure the product once it is back in stock.
• Prioritize backorders: When restocking products, businesses should prioritize fulfilling backorders to ensure that customers who have been waiting the longest receive their orders first.
• Utilize backorder management tools: There are various backorder management tools available that can help businesses streamline the backorder process and improve efficiency.

Best Practices for Managing Backorders

In addition to the solutions mentioned above, there are several best practices businesses can follow to effectively manage backorders. These include:

• Audit inventory levels regularly: By regularly auditing inventory levels, businesses can identify potential backorder situations and take proactive measures to prevent them.
• Set realistic delivery dates: When communicating with customers about backorders, it’s essential to provide realistic delivery dates to manage their expectations.
• Keep customers informed: Businesses should keep customers informed about the status of their backorders, providing regular updates on estimated delivery dates.
• Automate backorder processes: Utilizing backorder management tools can help automate the backorder process, reducing the risk of human error and improving efficiency.
• Analyze backorder data: By analyzing backorder data, businesses can identify patterns and trends, allowing them to make more informed decisions about inventory management and forecasting.

Real-World Examples of Backorders

Backorders are a common occurrence in the retail and e-commerce industry, and many businesses have implemented strategies to manage them effectively. Here are some real-world examples of how businesses have handled backorders:

Apple

In 2017, Apple announced the release of its highly anticipated iPhone X. Due to high demand and production delays, the company experienced significant backorders, with some customers waiting up to six weeks to receive their devices. To manage the situation, Apple provided regular updates on estimated delivery dates and offered customers the option to pick up their devices in-store once they were back in stock.

Amazon

In 2020, Amazon faced a surge in demand for essential products, such as toilet paper and hand sanitizer, due to the COVID-19 pandemic. As a result, the company experienced significant backorders, with some products taking weeks or even months to restock. To manage the situation, Amazon prioritized fulfilling backorders and provided customers with regular updates on estimated delivery dates.

Conclusion

Backorders are an inevitable part of the retail and e-commerce industry, but they can have a significant impact on businesses. By implementing effective strategies and best practices, including the use of inventory counting software, businesses can manage backorders more efficiently and minimize their impact on sales and customer satisfaction.

The integration of inventory counting software with backorder management tools can streamline the process, enhance accuracy in stock levels, and improve overall efficiency. By staying proactive and keeping customers informed, businesses can effectively manage backorders and maintain a positive brand reputation.