What Is A Backorder?
A backorder is generated when there is an out-of-stock product that is expected to be delivered by a specific date once it is available again. It is common that companies keep selling back-ordered products by reassuring the customers that the product will be shipped as soon as the inventory will be replenished.
Why Do Backorders Occur?
Since we analyzed what is a backorder, let’s learn more about the reasons that cause the generation of backorders.
- Unsuccessful Forecasting: When a business hasn’t collected sufficient inventory data then errors may occur in its forecasting processes. Expecting different levels of demand will lead the business to keep a low stock thus higher chance of backorders may occur.
- Unexpected Demand Levels: Seasonality has a crucial role in handling backorders. During holiday seasons, demand may roughly augment and lead to uncommon purchasing customer behaviors.
- Order Delays: Businesses may run into stock order delays because of their suppliers or manufacturers. Sometimes, supply chain and logistic risks occur and can lead to inventory being out of stock thus businesses choose to create backorders to meet their customers’ needs.
- Lack of Inventory Control: Bad inventory management leads to the inability of controlling your stock. Without a proper inventory management solution, a lack of inventory control will arise.
- Poor Inventory Sync: When selling your products through multiple platforms without maintaining a central solution with which you will access total control, there’s a high chance that backorders will be needed.
How To Minimize Backorders?
To avoid or minimize using backorders, you can follow the above tips:
- Improve Inventory Planning and Forecasting: Choose a trustworthy inventory management solution that will provide inventory planning and forecasting. This will lead you to have accurate stock data for an excellent order fulfillment
- Enhance Your Reporting Processes: Without reporting data collections you will consistently remain out of stock while also maximizing backorders. To avoid that, you can notify the customers that a product is back-ordered. This way you will let them decide if they want to move forward with their purchase. Also, your warehouse should be notified on time to replenish inventory when items are out of stock.
- Alternative Suppliers and Manufacturers: Since sometimes order delays happen because of them, a company can have a backup supplier or manufacturer to minimize the risk of backorder.
- Set reordering points: By using an inventory solution, you can define specific reordering points. According to your stock, you will get notified that there’s the need of repurchasing inventory to replenish it.