What Does Backorder Mean?
In ecommerce, backorders refer to items that are out of stock, but can still be ordered by customers. Once the item is back in stock, the customer will receive the item. Backorders occur when demand for a product exceeds the supply. Customers who place orders for backordered items will typically have to wait longer for their order to be fulfilled and may get angry or even cancel their order if they wait too long.
Backorder vs Out of Stock
The difference between out of stock and backorder comes down to if and when an item will be restocked.
A product that is backordered tend to have a definite restock date. Normally you'll see something like "Restocking expected in 7-10 business days" in this case.
However, out of stock products, will simply show as "Out of Stock" or have a note that could say "This product may or may not be back in stock" or "This product has been discontinued". In these cases, there is a good chance you will not be able to order the product in the future.
Causes of Backorders
1) Volatility in Demand
If a product unexpectedly has a great increase in demand, backorders are common.
Here are a few ways volatility can occur:
TV Appearance (Shark Tank, Good Morning America, etc.)
New Sales Channel
Increase in Ad Spend
2) Low Safety Stock Levels
Just like you keep an emergency savings fund, you should keep safety stock in case you sell through inventory faster than expected. It is always difficult to make sure you have the right amount of stock on hand, but safety stock makes sure you avoid backordered items and can keep selling.
3) Issues with Your Manufacturer or Supplier
Unfortunately, sometimes things happen that are out of your control. For example, a manufacturer or supplier could run out of the raw materials needed to make your goods or they could be shut down for an extended period of time (ex. Chinese New Year). Even worse, they could simply discontinue your product or fail to ship it on time.
Strategies to Avoid Backorders
No customer wants a backordered product, but sometimes it is impossible to avoid. Make sure to take the steps below to minimize backorders.
Maintain Adequate Safety Stock
As an ecommerce seller, you should have a full inventory management system in place to manage and predict inventory levels. It is imperative to know your inventory in real time to avoid running out of a product.
You can do this by forecasting demand and proactively ordering stock to meet that demand. Especially when you are shipping via sea freight, you need to be planning months ahead.
Calculate and Determine Reorder Points
You should know exactly when to reorder more of your inventory based on the quantity of a SKU you have on hand. This is known as the reorder point. To calculate it, you can use the reorder point formula, which is just a comparison of your manufacturer's lead time, anticipated demand, and safety stock.
Fulfillment providers like OTW Shipping have built-in tools that allow you to determine your own reorder points or let them utilize your sales data to predict when you need to reorder more product. They'll even send you alerts when you do!
Make sure to take into account those spikes in demand that may result from factors we discussed earlier. You will need to adjust your reorder point to include those sales.
Stay On Top of Your Inventory Levels
You should always be keeping track of your inventory. This is especially true for popular products that can sell out in the blink of an eye.
Have Backup Suppliers
When you utilize multiple suppliers, you'll be safe in the event one of them can't manufacture in time or stops supplying your product.
Order More Product Than Needed
While this is not always ideal due to increased storage costs, it may be better to stay in stock with excess inventory than stock out during high sales periods like Christmas. Everyone wants to have JIT (just in time) inventory, but it is very difficult to manage, and it's not a game you want to play with your customers.
How To Manage Backorders With Your Customers
Let Them Know
Don't wait until they've placed an order to let them know it is out of stock. It's better to be proactive. On the product page, you should provide a notice. See if you can win them over with alternatives, but let them know if and when it will be back in stock.
Provide Reasonable Estimates When It Will Be Back In Stock
Advertise an estimated ETA on the page for when the product will be back in stock. Be conservative so you don't disappoint any would be customers. You can make the product available on backorder if you think customers will be willing to wait.
Generate an Email List
Use your product page to gather emails from anyone who wants to know when the product will be back in stock. Sell them on it by letting them know it won't be back in stock for long!
Once the product is back in stock, make sure to send them an email so they can come back and pick it up.
What does available on backorder mean?
Available on backorder means the product is not currently in stock, but you can place an order now to reserve it for when it does come back in stock. Once the warehouse receives more inventory for the backordered item, your order will be shipped to you.
How long does a backorder take?
No More Backorders, Let OTW Shipping Help
OTW Shipping has a full suite of ecommerce inventory tools so you can track your
inventory in real-time, manage reorder points, and ensure you have enough safety stock with predictive inventory algorithms. And when your product arrives at our warehouse, our best-in-class SLAs will make sure that your backorders get out to your customers quickly and accurately so they stay happy.