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 facility of placing 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 utilize backorders, as a routine. These are companies that receive goods only on-demand, thus lowering their inventory holding expense.

It is therefore 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.

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Benefits of Backorder Processing

For suppliers going through tough times, especially now during the COVID-19 pandemic, a shortage of supplies can be disastrous. Shortages have damaging, long-lasting effects on businesses. These negative effects include weakening market presence because of unhappy customers, loss of sponsorship, and adverse word-of-mouth publicity.

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

All you need to do is let your customers know that the delivery dates are not the same for all items. It is a good idea to keep small amounts of the most popular products in stock to continue to attract buyers. This technique results in substantial savings on storage and servicing costs.

Challenges in Backorder Processing

Inventory management is one of the primary issues that are related to backorder processing. In your retail business, you may be eventually dealing with a huge number of orders, as much as thousands of backorders in one day. Here are a few of the real issues that are likely to arise when backordering merchandise:

  1. Clubbing all out-of-stock products from multiple sales orders into one purchase order
  2. Checking for accurate recording of every sales order with backordered products
  3. Registering an order for the unavailable items with the supplier
  4. 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:

  • Inform your customers upfront that the product is out-of-stock and will be backordered. Also, tell them when it will be back in stock. This will help you retain your 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.
  • Try to do most of your business deals on backorders. This keeps your company in demand. Remember “demand attracts more demand”. You just have to keep your customers informed about when the deliveries of the product will happen. This method helps you cut down on your storage costs, warehouse expenses, and inventory bottlenecks.
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Finally, backorders can either be profitable or can cause issues for your business. It all depends on your course of action and your business turnover.

Provided that you’re systematic in managing your backorders and communicating well with your customers and supply chain, this is the best thing that can happen for your business!

If you’re struggling with getting your inventory to Walmart, you may need to generate a store-specific order (SSO). SupplyPike has an easy-to-use tool that allows you to do just that, in a matter of seconds instead of hours.

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Updated on August 6, 2020

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