In this article, learn about:
Why backorders are necessary
The benefits and challenges of backorder workflows
When and how to manage backorders in retail
Backorders directly intersect with customer expectations and operational excellence. Having a deep understanding of how and why orders are created for out-of-stock items can make all the difference for suppliers. When managed well, backorders keep revenue flowing (when it otherwise may have stopped) and provide suppliers with invaluable visibility into true demand.
In this article, we’ll explain everything suppliers need to know about backorders and how to manage them well.
What is a Backorder and Why Do Suppliers Use Them?
A backorder occurs when a customer or retailer places an order for a product that is temporarily out-of-stock (OOS)—but rather than marking it as unavailable, the retailer or supplier accepts the order with the promise of shipping it later.
Backorders are commonly used downstream when:
Sales spike unexpectedly
Forecasts underestimate sell-through
Backorders are commonly used upstream when:
Suppliers rely on just-in-time replenishment
Raw material delays slow down production
Backorders can be a lifeline during moments of higher-than-expected demand. They prevent suppliers from losing sales and help them avoid missing out on revenue simply because a product sells faster than expected.
Related Reading: What is Stock Control?
Backorder Workflows
A clear backorder workflow helps suppliers keep operations organized while supporting trust across the supply chain.
1. Order Placement and Customer Notification
A customer or retailer places an order for an item that is temporarily out-of-stock. They can continue with the purchase, but the order is flagged on supplier internal systems as “backordered” and is assigned a ‘pending fulfillment’ status. The customer should be automatically informed of the expected delay in arrival.
2. Replenishment
Based on the backorder, an automated trigger order is sent to resupply stock. At this stage, proactive communication becomes critical. Confirming the order and providing an estimated fulfillment date sets expectations early.
3. Payment Processing and Fulfillment
Once the item is back in stock, orders are picked, packed, and shipped just like standard orders. Customers should receive automated shipment updates and delivery details.
4. Customer Service and Follow-up
Suppliers should follow up with customers after they receive backordered items to ensure satisfaction. Reviewing historical analytics is also applied at this stage to prevent future stock outs.
Benefits of Using Backorders
Suppliers across industries rely on backorders because they offer several operational and financial advantages:
Aligning with demand planning windows
Retaining customers
Lowering inventory holding costs
Improved scorecards through more accurate forecasting
When used strategically, backorders can strengthen a supplier's visibility and long-term planning.
Challenges of Using Backorders
Despite the benefits, backorders do introduce challenges that suppliers must proactively manage to protect customer trust and retailer relationships.
Suppliers who experience prolonged OOS items may encounter:
Risk of delisting
Loss of confidence from customers and retailers
Increased retailer deductions
Backorder challenges will usually compound over time, especially when demand surges often exceed operational capacity.
Related Reading: Phantom Inventory Is Haunting Your Supply Chain
Operational Stress During High Volume Time Periods
High volume sales periods add strain to operations, particularly when backorders accumulate faster than operations can process them. Suppliers need to keep sales flowing, but don’t want to keep customers waiting.
Common stressors include increased burden on administrative staff, communication breakdowns, strained customer service, and a growing list of unfulfilled orders. When demand spikes unexpectedly, it creates congestion that slows operations and often increases error rates.
To manage this, businesses need to implement proactive strategies like:
Regularly reviewing and maintaining Order Management System (OMS)
Preparing ready-made kits (even if one component needs to be added later)
Improving inventory visibility across internal teams
Focusing on transparency with business partners and customers
Best Practices for Managing Backorders
The process of managing backorders requires visibility—with partners, of course, but also with prospective customers. Informing customers upfront that the product will be backordered, along with the expected restock date, would be the minimum. Many suppliers can help retain customers by making them feel individually attended to until their order is fulfilled, simply by sending automated emails with updates.
Beyond communication, suppliers should implement the following best practices to keep backorders flowing smoothly.
Strengthen Visibility with Accurate Data
Inventory data across all platforms should be centralized to ensure teams have a real-time view of what is available, what has been promised, and when inbound materials will arrive. Clear visibility prevents accidental overselling, and it allows for faster decision-making during unexpected demand spikes.
Use a Third-Party Analytics Partner
Backorders often trace back to gaps in visibility, especially when suppliers juggle multiple retailers, marketplaces, and fulfillment streams. A third-party analytics partner helps close those gaps by centralizing data and providing clear insights into sell-through, replenishment timing and demand patterns. With unified dashboards and automated alerts, suppliers can spot trends right away.
Prioritize Orders Fairly
As inventory arrives, suppliers should allocate it in the order that backorders were received (unless a retailer's contract specifies otherwise). A consistent strategy helps support strong relationships and reduces the risk of complaints.
Automate Backorder Notifications
Automation and triggered communication ensure customers always know when:
Replenishment is expected
The order has shipped
These simple touchpoints improve customer confidence and reduce customer service workload.
Align Teams
Backorders affect every part of the supply chain. Internal coordination prevents miscommunication and ensures that processing happens smoothly. Aligning operations, sales, and customer service will ensure a consistent and accurate message is delivered externally.
Store Specific Orders (SSO): Avoiding Backorders
In the supply chain, Store-Specific Orders (SSOs) help suppliers proactively manage and reduce backorders by providing a way to replenish stock that falls outside of the standard, automated inventory forecast. SSOs allow suppliers to respond quickly when individual stores begin to run low on stock, preventing those locations from slipping into OOS or backorder status.
A SSO is often used to combat unexpected stock outs and can also be used to restock stores in anticipation of promotional or seasonal events. While a SSO is typically requested by the buyer or replenishment manager, the supplier is usually responsible for determining which stores need inventory along with the quantity of inventory.
Related Reading: When To Do SSOs (Store Specific Orders)
Frequently Asked Questions
Why do backorders happen?
Backorders typically happen due to unexpected demand, inaccurate forecasting, production delays, or supply chain disruptions.
Are backorders and pre-orders the same thing?
No. The term backorders refers to an item that was in stock but is temporarily sold out. Pre-orders refer to an item that has never been in stock but will be available soon.
How should suppliers communicate backorders to customers?
Suppliers should notify customers immediately of a backordered item and continue with updated information until the item is received.
Do backorders hurt relationships with retailers?
Not necessarily, but chronic backorder issues can lead to reduced fill rates and loss of shelf space.
Can backorders result in retailer deductions?
Yes. If retailers don’t receive inventory on time or in full, they may issue compliance deductions. Maintaining accurate communication regarding arrival times can help reduce risk.
How Can SPS Commerce Help?
In today’s retail market, expanding business means managing an increasing number of sales channels and partners. All too often this leads to a chaotic mix of emails, portals, and the complexities of EDI compliance.
SPS Fulfillment Centralizes Your Operations
All the necessary documents like orders (including backorders), shipping notices, invoices and inventory updates from every channel—brick and mortar, ecommerce, and marketplaces—are available through one easily-navigated dashboard. Fulfillment gives suppliers a single place to check on what’s happening with the business in real time.
Save Time, Money, and Effort
With all orders in one place, Fulfillment allows suppliers to save time and streamline processes. More automation and fewer keystrokes mean data always gets mapped to the correct fields. When manual tasks are reduced, suppliers save time, money and effort across the business, providing more bandwidth to focus on what matters most.
Fulfillment Scales With You
With pre-built connections suppliers can use right away all the way to features that allow further optimization—SPS Commerce Fulfillment offers the people, process and technology needed to grow your business. Start building a partner network and seamlessly connect orders all over the world with a single, smart solution.
