Backorders And Their Effect On Supply Chain

Learn About:

• The Benefits of Backorders

• The Challenges of Backorder Processing

• The Best Ways to Manage Backorders In Retail

Successful suppliers can still sell their products to customers even if they don't have the inventory. To do so, they use backorders.

Backordering is the process of giving your customers the ability to place orders even when you have insufficient stock. This technique is applied by companies when a spike in sales indicates that products are being sold quicker than they can be replenished. It is a great way to deal with rising demand.

Suppliers that use a just-in-time inventory management strategy typically utilize backorders. These are companies that receive goods only on-demand, thus lowering their inventory holding expense.

It is important for these suppliers to precisely forecast the customer's demand within a specified period. Such suppliers consider backordering as a basic and necessary part of business sustenance.

Benefits of Backorder Processing

Besides retaining customers, backorders can help save plenty of time and money. This business format can seamlessly work for suppliers that deal with high-priced, hand-crafted, or perishable goods. 

It is important to let customers know that delivery dates are not the same for all items. Keeping small amounts of the most popular products in stock can continue to attract buyers. This technique results in substantial savings on storage and servicing costs.

Challenges in Backorder Processing

For suppliers going through tough times, a shortage of supplies can be disastrous. Shortages have damaging, long-lasting effects on businesses. For example, loss of sponsorship or weakening market presence because of unhappy customers.

Inventory management is one of the primary issues related to backorder processing. In a retail business, there may be occasions where dealing with a huge number of orders becomes commonplace, including managing thousands of backorders in a single day.

Here are a few of the fundamental issues that are likely to arise when backordering merchandise:

• Clubbing all out-of-stock products from multiple sales orders into one purchase order.

• Checking for accurate recording of every sales order with backordered products.

• Registering an order for the unavailable items with the supplier.

• Once re-stocked, tallying the sales order of received items with the purchase order.

Best Ways to Manage Backorders

What may work as a backorder solution for one business may not work for another. However, there are two key methods of managing backorders:

• Informing customers upfront that the product is out-of-stock and will be backordered, along with the expected restock date, can help retain customers. Make them feel individually attended to until their order is fulfilled. This can be done via email, calls, or any other available means of communication that make it possible to assure the customers that they are being served.

• Managing most business deals on backorders keeps the company in demand, as "demand attracts more demand." Keeping customers informed about the timing of product deliveries helps cut down on storage costs, warehouse expenses, and inventory bottlenecks.

Backorders can either be profitable or cause issues for a business, depending on the course of action and business turnover. Being systematic in managing backorders and communicating effectively with customers and the supply chain can significantly benefit the business.

For businesses struggling with getting their inventory to Walmart, generating a store-specific order (SSO) may be necessary. A Store-Specific Order (SSO) is needed to combat unexpected store out-of-stocks. It can also be used to stock stores in anticipation of promotional or seasonal events. An SSO is usually requested by the buyer or replenishment manager, but the analysis of which stores need inventory and how much is often left up to the supplier.

How Can SupplyPike Help?

With SupplyPike's software, suppliers can improve the efficiency of their retail products from beginning to end, leaving more time for focusing on business growth.

Make your Root Cause Analysis count! Don't settle for just winning back money that shouldn't have been lost in the first place. Improve your supplier performance by ironing out the kinks in your supply chain.

Schedule a demo today to see if SupplyPike is the right fit for your business!