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The Ultimate Guide to Preventing Backorders and Boosting Sales
In the fast-paced world of eCommerce, where immediate shipment and meeting shoppers' demand is pivotal, delays in shipping orders can severely disrupt operations and a company's bottom line. To this end, a deep understanding of backorders is necessary for eCommerce stores to prevent major customer service issues.
This article aims to equip businesses with insights into backorders, their meanings, causes, and how to avoid them to enhance customer satisfaction and loyalty. So, let's dive in. Also, remember, if you need expert advice on managing your eCommerce logistics, don't hesitate to speak to an expert.
What Does Backorder Mean?
Backorders arise when a product is unavailable for immediate dispatch at the time an order is made by a purchaser. This is because the item is not in stock in the seller's inventory but is still in production or available from the supplier.
Also called backlog, it indicates that demand for a particular merchandise exceeds what the eCommerce store ordered or has in stock. One interesting thing about it is that it can affect any business, no matter the number of years it has been in service.
How Backorder Works
Ideally, online stores aim to maintain sufficient inventory to meet demand. This involves having enough of each SKU (Stock Keeping Unit) available so that when an order is placed, the business can promptly pick, pack, and ship the requested units to the buyer.
However, a firm might deplete its inventory of a particular item for various reasons. In such cases, the store typically orders more stock items from its supplier or manufacturer while keeping the product listed on its website. This approach allows buyers to continue placing orders even when the item is not immediately available.
So, when a shopper orders a product that is not available immediately, the package is classified as a backordered item. This means the purchase will be fulfilled once the new stock arrives from the supplier or manufacturer. The primary condition here is the buyer's willingness to wait for the restock.
This process ensures that despite the temporary unavailability, buyer interest in the product is retained, and sales continue. However, the business must communicate clearly about the expected wait time to maintain client satisfaction and trust during the whole process.
What Does Partial Backorder Mean?
A partial backorder occurs when a buyer's demand cannot be fully met because some items are out of stock while others are available and can be shipped immediately. The unavailable items are dispatched as soon as they become available. For example, if a shopper orders a computer setup and only the monitor is in stock, the monitor is shipped first, with the promise that components such as the keyboard and CPU will follow once they are also available.
An alternative approach involves holding the available items until the entire order can be shipped together. Regardless of the method, clear communication with the shopper about their order status is highly important. This practice differs from full backorders, where the entire order is delayed until all items are available, highlighting the flexibility of partial order backlogs in managing stock levels and buyers' expectations.
Backorder vs Out of Stock
This table outlines the key differences between items that are on backorder and those that are out of stock.
Advantages and Disadvantages of Backorders
Backorders can be a double-edged sword for enterprises, offering both opportunities and challenges in handling product levels and expectations.
While backorders present a strategic opportunity to manage inventory and maintain sales, they require careful handling to avoid dissatisfaction and operational inefficiencies. Balancing these aspects is key to building customer loyalty.
Why Do Backorders Happen?
In this section, we will review the key factors that often lead to item delivery being delayed, offering insights to help you proactively manage this challenging aspect of eCommerce.
High Demand
When merchandise suddenly becomes a must-have item, everyone rushes to buy it, leading to a surge in demand that stores didn't anticipate. Various factors, such as seasonal peaks, media exposure from television appearances, or endorsements by celebrities, can trigger this surge.
Therefore, unusual demand can deplete shelves much faster than expected, causing inventory shortages. The challenge lies in predicting these sudden spikes and stocking up for eCommerce sales properly. However, surprises can still occur, making it challenging to always have enough stock to fulfil orders.
Supply Chain Issues
Disruptions in the supply chain can also make items unavailable. These inefficiencies can range from manufacturing delays and shipping bottlenecks to geopolitical factors affecting international trade. For instance, a delay at a port due to customs issues can set off a chain reaction, causing the product delivery to be delayed.
Poor Inventory Management
Proper inventory management [1] is akin to maintaining the perfect balance of food in your fridge – enough to avoid shortages without overstocking to prevent waste. Without an effective system to monitor stock levels, companies can quickly find themselves dealing with backordered items.
To this end, implementing a modern inventory management system offers a solution by delivering real-time updates on stock availability and shortages. This technology enables stores to make informed decisions promptly, such as replenishing stock before it depletes, thereby preventing backlogs.
Low Safety Stock
Issues with managing product levels often arise from decreases in safety stock, which serves as a buffer to mitigate the risk of stockouts. More specifically, safety stock allows retailers to maintain a continuous offering of merchandise in-store between shipments and manage periods of high product demand effectively. However, a reduction in this critical stock can disrupt production schedules and result in backlogs, significantly impacting a business's ability to meet shopper’s orders promptly.
Human Error
Mistakes such as warehouse management discrepancies, forgetting to replenish an SKU or inaccurately counting products are common. These errors can result in selling more units than are actually available, complicating stock management and customer satisfaction. Proper inventory handling and practices are crucial in minimising these errors, ensuring that goods levels are accurately maintained and updated to prevent overselling and the subsequent challenges it brings to fulfilling orders.
Delay in Production
Delays in the production process can significantly impact a company's ability to meet demand, leading to an increase in backordered items. These delays often stem from issues within the manufacturing or supply chain, such as a production facility's loss of access to essential raw materials or a supplier halting operations indefinitely. As companies scramble to resolve these disruptions, the gap between supply and demand widens, exacerbating the challenge of keeping inventory levels sufficient.
How Backorders Affect Your Business
Ineffective handling of backorders can lead to several challenges that may adversely affect your firm. Importantly, addressing these challenges proactively is essential. By understanding their potential to disrupt customer relations, complicate operations, and inflict financial damage, stores can develop strategies to mitigate these risks.
Customer Dissatisfaction
One of the most direct consequences of order backlogs is customer discontentment. When buyers discover that a much-anticipated purchase is delayed, it can frustrate them, potentially leading to negative reviews and adverse social media commentary. Such feedback can damage your brand's reputation and erode shoppers' loyalty over time, as disappointed buyers may hesitate to return for future purchases.
Operational Challenges
The logistical costs of fulfilling items can escalate, necessitating expedited shipping or managing multiple shipments for a single order. Additionally, monitoring backordered stock levels and updating buyers on expected delivery times impose extra administrative tasks. The challenge extends to maintaining the quality of customer service. In addition, coordinating with suppliers and managing shipping logistics become increasingly intricate.
Financial Implications
Financially, backorders can have a dual impact on your business. Initially, they might appear to boost cash flow, but the long-term consequences could include diminished sales as consumers cancel orders or turn to competitors with readily available inventory. Furthermore, extensive backorders may deplete resources needed for other products, leading to missed sales opportunities. These combined factors can negatively influence your firm's profitability and growth potential.
6 Tips for Minimising Backorders
Accepting backorders can be tricky. However, by adopting the strategies given below, companies can effectively manage their inventory, reduce order backlogs, and maintain a positive buyer experience.
1. Enforce Safety Stock Measures
For online stores, an efficient inventory management system is necessary for tracking stock levels and avoiding customer disappointment. By forecasting demand and setting an adequate safety stock level, firms can buffer against unexpected surges or supplier issues. Companies can also maintain surplus stock levels, coupled with real-time tracking and proactive replenishment strategies. This will ensure that they are less likely to run out of any specific SKU, thereby enhancing overall satisfaction.
2. Accurate Inventory Forecasting
By analysing order backlog rates, firms can adjust their stock levels to meet demand without overstocking. To this end, utilising effective inventory management software is key for eCommerce operations. This will help facilitate seamless order processing and reduce the likelihood of product delivery being delayed. Plus, keeping abreast of stock levels and only making forecasts based on comprehensive data prevents inaccuracies.
3. Establish Reorder Points
Determining the reorder point for each SKU is essential to maintaining product flow and preventing stockouts. This involves calculating the sum of lead time demand and safety stock and adjusting for potential sales spikes during promotions, flash sales, or product launches.
Also, utilising historical data helps in accurately setting reorder quantities, especially for periods known for increased sales, such as Cyber Monday. Anticipating these demand fluctuations and adjusting orders accordingly can prevent lost sales and minimise order backlog situations.
For a deeper dive, check out our comprehensive guide on ‘How to Calculate Reorder Level’.
4. Monitor the Levels of High-Demand Items
In the unpredictable domain of eCommerce, continuous monitoring of stock levels is vital for making informed purchasing decisions. Although businesses can avoid stockouts by ordering huge amounts of high-demand products, it can clog up storage space and increase inventory carrying costs and backorder costs. Hence, regularly reviewing stock availability status allows stores to react effectively to shortages, ensuring that popular items remain available while avoiding additional costs.
5. Diversify Supplier Relationships
Engaging with multiple suppliers offers a safety net, providing alternative sourcing options if the primary supplier encounters production delays. This strategy not only mitigates the risk of delayed orders but also enhances supply chain resilience. It also ensures that stores can maintain a steady supply of products even in the face of unforeseen challenges.
6. Optimise Safety Stock Levels
While maintaining high levels of safety stock can prevent stockouts, it's important to balance this with the costs associated with excess inventory, such as increased storage and carrying costs. Online stores should carefully consider their storage capacity, turnover rate, and the financial implications of holding additional stock. To this end, calculating the additional costs beyond the per-unit price can help determine the most cost-effective safety stock level, allowing companies to avoid unnecessary expenses and invest resources more strategically.
Build Trust With Your Customers When You Have to Backorder
To retain your customers during these periods, consider implementing the following strategies:
Don't Keep Them in the Dark
It is crucial to inform them promptly when an item can't be delivered immediately. Clearly communicate the expected delivery timeline to set realistic expectations. This transparency not only builds trust but also significantly contributes to retaining customers.
Consistently Updates Buyers
As also mentioned above, maintaining regular contact with buyers about their items is essential. Periodic updates via email or text messages about the status of their order, including any changes to the expected arrival date, keep them informed and engaged. This consistent contact reassures them that you are actively managing the situation and value their patience, enhancing their overall experience with your brand.
Give Them a Realistic Timeline
Avoid the temptation to promise earlier delivery dates to appease customers, as failing to meet these anticipations can lead to dissatisfaction and erode trust. Instead, use the waiting period as an opportunity to engage buyers further by sharing product information, brochures, or exclusive offers. This strategy not only manages expectations but also builds anticipation and loyalty, significantly reducing the likelihood of cancellations.
Why Choose Bezos for Avoiding and Solving Backorders
When it comes to avoiding and solving backorders, Bezos stands as a game-changer in the eCommerce fulfilment landscape. Operating across key markets like the UK, Australia, New Zealand, and throughout Europe, we offer a full-service fulfilment solution that addresses all your concerns and pain points. Imagine saving one to five hours a day on logistics tasks alone, freeing you to focus on product development or marketing.
We employ real-time order tracking and offer complete visibility of all your orders through a single, intuitive portal. This feature is crucial for accurate forecasting, helping you anticipate potential backorders and avoid them in time. With Bezos, you're not just outsourcing logistics; you're gaining a team that includes a warehouse, stock, and dedicated account manager who responds to tickets within two hours.
But that's not all.
Bezos is integrated with over 30 eCommerce platforms, offering pick and pack services to help fulfil buyers' requirements. Plus, our proprietary AI technology identifies and resolves logistics issues before they become your headache. And with fulfilment centres worldwide, we ensure that you can expand your business internationally with confidence.
Ready to take your business to the next level and say goodbye to backorder woes? Start saving now with Bezos.
Conclusion
In the fast-paced world of online shopping, backorders can be a significant stumbling block, affecting not just immediate sales but also long-term customer loyalty and brand reputation. As we've explored, understanding their root causes and impact is the first step in effectively managing them. From implementing real-time inventory tracking systems to maintaining open lines of communication with suppliers, there are multiple strategies to both avoid and solve this issue.
Additional tactics like automated reordering systems, diversified supplier networks, and customer retention efforts can further fortify your business against the challenges it poses. Moreover, when it comes to practical solutions for avoiding and resolving backorders, Bezos offers a comprehensive, full-service fulfilment solution that can transform your eCommerce operations. With real-time tracking, dedicated account management, and proprietary AI technology, we provide the tools you need to not just survive but thrive in today's competitive market.
Ready to eliminate backorders from your business equation? Get in touch with our team today.
FAQ
How long do backordered items take?
The duration varies, depending on the cause and the supplier's ability to restock. Typically, it can range from a few days to several weeks.
What does it mean if my order is backordered?
If your order is backordered, it means the item you've purchased is temporarily out of stock. Your order will be fulfilled and shipped to you as soon as the item becomes available again. Businesses usually communicate expected wait times and options available to you.
What is the difference between a preorder and a backorder?
A preorder is for an item not yet released, allowing customers to purchase in advance. A backorder occurs when an item is temporarily out of stock after it has been on sale. Both situations involve a wait but for different reasons.
How do I reduce backorders?
Reducing backorders involves improving inventory management, accurately forecasting demand, maintaining safe stock levels, and establishing strong relationships with suppliers for quicker restocking. Regularly reviewing sales data and adjusting stock levels accordingly can also help.
Références
[1] https://www.forbes.com/advisor/business/software/how-to-manage-inventory/
