From an online shopper’s perspective, finding out a must-have item is on backorder is like showing up at the beach on a beautiful day and seeing a sign that says, “NO SWIMMING."
Backordered items can be the result of unusually high demand, supply chain breakdowns, inaccurate forecasting, or inventory/warehouse management errors. Yet, despite this broad range of potential causes, one thing remains constant - customers don’t care why your online store doesn’t have what they want. The only thing that matters is that it does not.
Designing solutions for backordered goods is part of what we do at SkuNexus. Our software systems can help both mitigate instances when backorders are needed and also effectively manage the process across the entire backend in the event that they are.
To get a grasp of the ins and outs of backorders, it is best to begin with the basics. To that end, we will discuss the fundamentals, touch on the pros and cons, and talk about best practices any brand can use to optimize performance in this area.
What is Backorder?
A backordered product is an item that is still available from the manufacturer/supplier, however is currently not in a merchant’s inventory for order fulfillment. As stated above, the reasons for this can vary widely.
Before we go any further, let’s explain the difference between backorder vs. out-of-stock. Many shoppers may view these terms interchangeably and will look for the item(s) elsewhere regardless, but the distinction is critical.
Any item listed as “out of stock” cannot be ordered by the customer. The product in question is neither in a merchant’s inventory nor is there an expected date for new production/resupply. By virtue of this uncertainty, the online store makes it unavailable for purchase.
If an item is listed as “backorder,” on the other hand, a customer may order it and will usually receive a projection for its estimated delivery date. In some instances, the turnaround duration can be negligible.
Factors to Consider Before Accepting Backorders
Brands are certainly under no obligation to accept backorders. Multiple challenges can present themselves, and every eCommerce merchant must weigh the pluses and minuses of backorder fulfillment.
First and foremost, the supply chain issues in question must be examined. A complex and involved system will only yield longer backorder fulfillment times and can also result in the worst-case scenario of an eventual inability to deliver to the customer as promised.
Merchants must also assess their own fulfillment capabilities. Due to the logistical complications that can come with backorders, those with highly-automated inventory and warehouse management systems may be better suited to handle them.
External rules may restrict a merchant from accepting backorders, as well. Marketplaces like Amazon can have strict regulations for sellers re: the maximum allowable duration between order and fulfillment. Few, if any, brands would risk getting kicked off major retail platforms due to backorder delays caused by other parties.
The Backorder Process
Backorders do not need to be a major logistical challenge provided a business keeps its backorder rates at a reasonable level.
After taking a backorder, a merchant may choose to fulfill once inventory has been received or generate a purchase order and designate a dropship fulfillment directly from the supplier. In either instance, efficient customer service is crucial - buyers should receive as much real-time information as possible.
A manageable backorder system relies on limited to no manual order processing. The complications will mount and potentially spiral out of control without significant automation controlling the system.
Advantages and Disadvantages of Backorders
There are a number of pros and cons to accepting backorders. First, the bad news.
By virtue of the inherent uncertainty, backorders present a higher risk of customer orders being canceled. This is inevitable, particularly if already-delayed items get pushed further back.
There are also administrative issues to deal with. Payment processing and accounting become more complicated, and support agents may be forced to deal with an increased load of inquiries re: wait times, calls from frustrated customers, etc.
An array of pluses exist, however, and in ways that might not be obvious at first glance. Beyond being able to make sales, fulfill orders, and satisfy shoppers, backorders can have a profound impact on an eCommerce brand’s business.
Similar to a crowdfunding project, backorders provide exceptional insights into customer demand, both current and future. This information can help merchants adjust stock levels/safety stock, configure reorder points, and time inventory for various intervals.
Within the time between backorder and fulfillment, a brand has an opportunity to engage with the customer, as well. This atypical marketing window can pay real dividends.
The power of prepayment cannot be understated, either. Increased cash flow unbridled by excess stock or storage space costs can be used to grow your business in many other areas.
Best Practices for Managing Backorders
Some would argue that the best practice for managing backorders is to not have any in the first place. While we do not necessarily disagree with this sentiment, reality is never a perfect world, backorders occur, and a handful of best practices do exist to optimize your operations.
- Because the customer may already feel inconvenienced, providing exceptional attention and support is absolutely essential. Increased communication, manual or automated, to provide reassurance and generate enthusiasm is a great idea.
- Historical data must always be analyzed and used to gauge what customers want and when they will want it.
- Take every step to ensure you are never out of essential items, particularly if they are low-cost.
- Build a broad base of suppliers and dropshipping partners. There is never a downside to having multiple options, and the bottom line is that every effort should be made to acquire the ordered product and deliver it in a reasonable amount of time.
- Take steps to collect accurate data about current conditions, product levels, etc. An automated inventory management system as part of an overall model will provide information re: when items need to be reordered to avoid backorder situations altogether.
Even the best-managed eCommerce brands will encounter supply and inventory hiccups from time to time. Developing systems to minimize them should always be the first priority, but having the right processes in place to accept and fulfill backorders can yield good results, as well, and SkuNexus management software can help you with either scenario.
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