Backordered Items & Backordered Meaning
You drive to a bakery full of anticipation for your favorite chocolate cake. Then you arrive and there is no chocolate cake in the bakery case. DEVASTATION. This leaves two paths open. Would you rather find out the bakery is out of chocolate cake altogether and you have to settle for vanilla, or learn that another chocolate cake is in the oven and the treat will be ready for sale sometime this afternoon; you can pay now and return for it? Here we have the difference between an out of stock item and a backordered item.
What’s The Difference Between Out of Stock Items and Backordered Items?
Out of stock means there is no inventory currently available for a product and the manufacturer does not have a planned date for resupply. A backordered item is one that is not in stock now, but will be once an already-ordered supply refresh arrives.
On the front end, if an item is out of stock customers cannot order it. Meanwhile, with a backordered item, customers typically can order the item, understanding (based on vendor notes) that the item will not ship right away. Sometimes the vendor can give projections of when the item will be back in stock and shipped, for example: “Won’t Ship Until July,” “Won’t Ship for 10 Business Days,” etc.
On the back end, things become a little trickier because products that can and can’t be backordered may be stocked next to each other. Logistics companies need to have software that tells the difference between backorder-eligible items and out of stock items, and track each accurately. Additionally, if a 3PL company is fulfilling incomplete orders (i.e. orders with a backorder purchase), pickers and packers in a warehouse need to be aware of what is and isn’t going in the shipment. Sophisticated automation can be a huge help here—fulfilling backorders as soon as resupply comes in, refunding orders, and canceling orders if need arises.
Should You Offer Backorders?
Not all eCommerce brands offer backordered items for sale. Whether they do or not depends on their business model, uniqueness of products, quality of products, the capabilities of their logistics company, and trust that their suppliers can actually fulfill demand in a timely manner. That last one is extra essential because you shouldn’t promise products to a customer unless you feel certain you can deliver. If you offer people cake and they come back in a few hours for that cake, only to find out the batter burned, they will not be happy. So, in order to set yourself up for success, when deciding whether or not to offer backordered items to your customers, ask your supplier these questions:
- What do they need from you to adjust to demand shifts as fast as possible?
- How much lead time does your supplier require for a backorder to be filled?
- Can their facilities adapt quickly to add additional runs if demand persists?
- Are they able to make extra batches during seasonal shifts to account for spikes?
Once you have those answers, it really comes down to likelihood, sustainability, and efficiency. As in: Do you have data to support that customers will buy and not return backordered items? Is increased demand going to be a persistent factor or is it a random spike? Are your supply chains streamlined enough to get backorders out as promised?
What Causes A Backorder?
No one wants to be out of cake. Sometimes it just happens. In terms of eCommerce brands, with so many layers to supply chain networks, seasonal shifts, and fluxes in customer behavior, backorders can happen for an array of reasons. Some of these are preventable while others are not. The most common reasons backorders occur include:
Discrepancies in Data – Bad info leads to bad decisions. If a company has incorrect inventory data, or there is an error in your logistics company’s inventory management system, items may not be reordered when they need to be.
Unusual Demand – Sometimes brands get an unprecedented amount of orders. The root of these boosts is often linked to publicity. Perhaps the product appeared on a TV show, was endorsed by a celebrity, or got featured in a popular social account or magazine. In this case, business can boom unexpectedly and may not be a spike but a permanent shift into an upward trajectory. Which is great for your sales and long-term company success, but in the immediate future you are faced with a lot of customers and not enough inventory to fulfill their orders right away.
Problems with Manufacturers or Suppliers – When the people you count on to produce your products run out of materials to make the goods, your order fulfillment can come to a screeching halt. Other unpredictable ways a manufacturer or supplier can throw a wrench into your business plan and create the need for backorders are: shutdowns for unexpected periods of time (causes can range from long holidays to factory fires), factory shortages, and labor shortages.
Insufficient Safety Stock – Safety stock is the excess inventory you keep on hand in case of an emergency. With the unpredictable nature of the eCommerce industry, complex supply chains, and—frankly—random stuff going wrong sometimes, it’s always a good idea to keep some backup inventory available. If you do not keep safety stock or have an insufficient size of safety stock, when an emergency comes, you’re out of luck and will have to resort to backorders.
Human Error – This is a smaller cause for backorders, especially given that quality logistics companies like ShipMonk use sophisticated automation and advanced inventory management software to complement their human workforce and minimize errors. However, for other logistics companies that do not properly pair technology with human team members, sometimes employees may fail to locate an item and enter it into the system as a backorder when in reality it was there and available; they just couldn’t find it.
How to Handle Backorders Quickly?
Naturally a big part of this comes down to the speed that a supplier can get you the in-demand products. However, there are steps logistics companies can take to push the process along once that refill comes through. In order to set you up for success, logistics companies can:
- Optimize warehouse layouts so bins and SKUs are easy to find.
- Ensure warehouse managers are well-informed so they can figure out the most efficient fulfillment timing, schedule carrier pick ups, and in general keep things moving.
- Since putaway slows down the fulfillment process, utilize cross-docking with temporary shelving for outbound-priority items to speed shipping along.
- Assign team members with the necessary equipment to specific tasks within the fulfillment process to make things more efficient.
- Keep a close eye on dock and delivery schedules to minimize bottlenecks of incoming shipments and stay alert for new products.
Furthermore, the most successful logistics companies have a thorough backordered items plan. That can involve proactive data and inventory management where you continuously refine your order quantities based on data and historical demand. Clear policies about when backorders are allowed and how they will be handled are important—as in, do these backorders count as buffer stock to your original order or is the incoming shipment counting as a normal resupply that you just happen to be using to fulfill backorders? And lastly, depending on the client and quantity of backordered items, a dynamic logistics company may want to have specific employees trained to handle backorders—assigning specific team leaders and customer service liaisons to handle the volume and urgency.
What to do about Backorders?
People tend to get upset if they don’t get what they want when they want it. Especially in today’s eCommerce environment, customers have been taught that they should be able to receive products quickly. When the vendor they’re visiting is “out of cake,” you must ensure that the customer-facing frontend of a backorder transaction runs just as smoothly as the backend process that is physically fulfilling the order. Overall, clear communication is the most important thing. You want to keep customers happy and engaged with your site so they don’t go elsewhere to fulfill their needs. Best recommendations for handling backordered items on a customer service front include:
- Clearly state on product pages if an item is currently unavailable, and to what extent (i.e. backordered vs. out of stock).
- Notify customers right away if an item is on backorder, or if an item that previously had a backorder status is later switched to an out of stock status.
- Provide accurate and feasible timelines to customers regarding when backordered items will be shipped.
- Give ETAs so customers stay informed about when backordered items will arrive.
- Set up an email list on product pages that customers can join if they want to be notified when backordered and out of stock items become available.
- Send emails to customers once items have been restocked, and engage customers regarding other items similar to those they’re interested in which are currently available.
Tips to Prevent Backorders
As noted by some of the reasons backorders occur, they sometimes cannot be prevented. There are stock control measures though that businesses can take to minimize the odds of backorders happening. Most of these tips come down to preventing delays in placing a reorder, monitoring stock, anticipating the need for greater stock, and keeping extra products in your inventory. Specifically, these are the areas to pay attention to:
Inventory Management – It is vital that logistics companies have a top-notch inventory management system that keeps track of products in real time. As a business owner, you should also do your part to influence stock by regularly checking inventory of popular items/items that sell out quickly, keeping extra stock (safety stock) for emergencies and unusual spikes in demand, and actively replacing SKUs vs. waiting for things to run out before you reorder. Note, while keeping safety stock is important, be careful not to clog up your warehouse space with too much of it, as that ties up your money in carrying costs and SKUs that may not move fast.
Calculating Reorder Points – A reorder point is a threshold that triggers a reorder of a product—as in, once a product reaches a minimum quantity of a certain SKU, the business is notified of the need to get a refill from the supplier. Reorder points are calculated based on adding up the days worth of safety stock you have and lead time demand. When creating those reorder points, it is important to consider any adjustments that will be necessary if the business is planning a sale, promotion, high-impression media coverage, and new product launches. For annual events like Black Friday and Cyber Monday, look to historical data to refine reorder points for seasonal shifts. Top 3PL companies like ShipMonk have advanced inventory management software that makes reorder points easy to calculate and alerts brands about inventory needs in real time to prevent backorders.
Maintaining Multiple Suppliers – While not the route for every business, especially depending on relationships, there are advantages to working with more than one supplier. Specifically, if a manufacturer ever experiences a materials shortage, labor shortage, shutdown, emergency, or even just a delay in shipping due to backlog, having another supplier to step in and fill the gap is a lifesaving backup plan.
Backordered Items Solution
At its simplest form, backordered items are products that warehouses do not have, suppliers haven’t refilled, or manufacturers have not yet produced BUT are on their way. It can be stressful for a business owner to encounter a backorder issue, given the desire to keep products moving and keep customers happy. While the glass half empty reason for backorders comes down to production problems, supply chain delays, and mismanaged inventory, the glass half full perspective means more sales, spikes in popularity, and unanticipated extra business. Either way you look at it, if you’ve done everything you can to prevent backorders, should they occur, it is critical that you handle them properly on the customer-facing front and the fulfillment backend. Logistics companies with advanced software, real time inventory transparency, and efficient warehouse management can help you do just that. And in the realm of innovative logistics companies, ShipMonk really takes the cake! Contact us or demo our software today.