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Backorders have existed as long as supply lines and logistics. But with increasing competition in and from eCommerce companies, maintaining stock to avoid backorders is an important part of meeting customer expectations. Enter modern warehouse management solutions.
What Does “Backorder” Mean? What is Backorder?
A backorder is an order (or part of an order) waiting to be filled, usually because the merchant in question does not have that item currently stocked in the warehouse. By some estimates, 34% of all companies have shipped an item late because of backorders.
In the past, whenever a merchant ran out of a given SKU, the company would simply issue a backorder while they purchased or manufactured more items. Customers would then wait for the item, taking the delay as a fact of life.
Those days are long gone.
Today, modern warehouses are tracking both inventory levels and item velocity, making precise predictions about backorders, out-of-stock SKUs, and low stock levels. They use that information to trigger action items so that inventory never “runs dry.” In effect, predictive algorithms, automation, and modern warehouse management tools have basically eliminated backorders for many merchants.
And that is a great thing when it comes to customer experience.
When a company, particularly an eCommerce company, takes a backorder, they are saddling the customer with a delay. That delay can last days or even weeks. (For some concrete examples of the problems that backorders create, see our article on The First Rule of Inventory).
Backorders are bad, plain and simple. But how do you avoid backorders and optimize your stock levels?
Backorders have been the standard operating procedure for most merchants for decades. Indeed, they are a natural outcome of having products where demand outstrips supply (either delivery from another vendor or in-house manufacturing capabilities). When inventory ran out, the merchant would take a backorder and the customer would simply have to wait for the item to be in stock again.
This procedure doesn’t work in today’s digital economy, however. Today’s consumer is used to a higher standard of service, brought on by the promises of Amazon and other large internet retailers. This higher standard includes order processing within 24 hours, prompt shipping, and speedy delivery at a low cost. Needless to say, consumers with these expectations do not tolerate backorders.
Even more problematic is deciding what to do when the inventory actually comes in and it is time to fulfill those backorders. Here’s the issue: suppose you choose to ship it to the customer. He or she might accept it—then again, he or she might not want the item(s) anymore. In this case, the customer will refuse the order, leaving you on the hook for the delivery fee (and having to issue a refund).
Things are even more complicated if a customer orders multiple items at once. Do you wait for the back ordered item to come in before sending a shipment? If so, you might have to deal with multiple returns by the time the customer gets the shipment. Or do you send each item as it becomes available? That’s a better solution, but it means way more in terms of shipping costs—shipping costs that you, the vendor, will have to absorb.
Avoiding backorders doesn’t just make your customers happier; it positively affects your bottom line, too.
If you'd like to find out more about inventory tracking and optimization, feel free to reach out.
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