Backorders are inevitable in business. Learning to manage them while keeping your customers happy is key to running a successful business.
What is Backorder?
A backorder occurs when a customer orders an item that is temporarily out of stock. Generally, back-ordered items comprise goods that are unavailable in the seller’s current inventory but are either already in production or en route from suppliers.
In an idealistic world, businesses will always have enough stock to fulfill their customers’ orders. Unfortunately, factors like excess demand and supply chain bottlenecks can cause a company to run out of a particular product that a buyer may wish to order at that specific time. When this happens, many small business owners sell unavailable items on backorder and ship them to the customer after replenishing their inventory. This process enables them to generate revenue even with insufficient stock.
Out-of-stock vs backorder
When a product is out of stock, it means it used to be available but isn’t anymore. Unlike back-ordered items with foreseeable restock dates, businesses are usually unable to predict when out-of-stock items will become available. As stated earlier, back-ordered items are either already being produced or are on their way from the supplier. While it might take a while for the customers to receive the products, there is a certainty that they will be delivered. With out-of-stock products, no such assurance is in sight. In fact, there is a chance that the unavailability of said items might be permanent.
Pre-order vs backorder
A pre-order is placed for items yet to be released in the market. It is for products currently available for purchase but have never been manufactured or sold to customers. Customers that buy items on pre-order often enjoy certain advantages or perks unobtainable to people who place regular orders. These perks include lower shipping costs, expedited shipping, gifts, etc.
On the other hand, a backorder occurs when an item that was once in stock temporarily runs out. In this case, the seller continues receiving orders for the product and fulfills these orders when the item is restocked.
What Causes Backorder?
Several factors can be responsible for backorders, including:
- Excess demand: In business, there are times when demand suddenly outpaces supply, causing products to be back-ordered. The sudden increase in demand can be because of seasonal events like holidays, extreme weather, or social media trends.
- Supply chain issues: Disruptions in the supply chain can occur due to logistics problems, factory shutdowns, shortage of materials, or manufacturer inadequacies. This can cause products to unexpectedly run out of stock, resulting in backorders.
- Inadequate safety stock: Safety stock refers to excess inventory that businesses maintain to prevent out-of-stock situations. Insufficient safety stock puts your company at risk of experiencing backorders, as there won’t be enough items to act as a buffer if unforeseen circumstances occur.
How to Reduce Backorder?
Backorders may be inescapable, but there are steps you can take to reduce them and maintain consistent product availability.
Communicate with Manufacturers and Suppliers
The most obvious way to minimize backorders is by replenishing your stock regularly. Keeping the communication lines between you and your manufacturers or suppliers open will help you maintain top-of-mind awareness, which can result in a shorter turnaround time when you need to restock. It will also assist you in building strong buyer-supplier relationships that can be incredibly beneficial in the face of any business chaos. Partnering and effectively communicating with multiple manufacturers ensure that you have a viable backup plan if your primary supplier is unable to deliver the goods.
Utilize an Inventory Management System
Inventory management systems (IMS) are digital solutions that enable you to keep track of stock levels. They monitor your supply chain, track sales, and maintain optimal inventory levels to prevent backorder. When the quantity of an item reduces drastically, these systems alert you and indicate the amount that should be restocked. Inventory management systems also provide data-driven insights and analytics to help you set appropriate reorder points and improve your stock forecasting.
Manage Backorders With Affordable Shipping Rates
Effectively managing backorders keeps your supply chain running smoothly and your customers satisfied. One of the most popular reasons for backorders is supply chain issues, which digital shipping platforms like GoShip can rectify. GoShip is a freight marketplace that connects small to mid-sized business owners to professional and reliable carriers without needing a broker. Should backorders occur, you can rest assured that GoShip has the tools to guarantee expeditious fulfillment once the products become available.
The self-service platform partners with over 45,000 certified carriers that will keep your supply chain moving, come rain or shine. These shippers charge affordable rates for LTL shipping USA to minimize your logistics costs and boost your business’s profitability. Visit GoShip.com today to get a free FTL or LTL quote for domestic or international.