Backorders: What They Mean and How They Affect Your Ecommerce Business
Backorders can get risky. Though it’s exciting to see your product surge in high demand, backorders can cause a serious dent to your customer experience in today’s demanding digital economy. So what do you do?
We’re providing a full rundown on what backorders mean for your Ecommerce company, as well as practices you can adopt to safeguard the viability of your business and customer experience.
What Is a Backorder?
A backorder is an order of a product that is temporarily out of stock due to a lack of available supply. If a shopper lands on the product page of a backorder, it will usually have a specified availability date noted. This lets the customer know when they can expect their order to ship.
What happens when an item goes on backorder?
Allowing your product to be backordered means you’re asking your customer to purchase it in advance. Nothing is shipped to the customer until the items are back in stock. If there are other items in the same order that are available, they may be shipped out to the customer first.
Backorder vs Out of Stock: What’s the Difference?
Many people get confused between the terms backorders and out of stock. While backorder indicates an item will be back in stock sometime in the future, out of stock implies there isn’t a date for resupply and a possibility that there never will.
For example, a product page of a backorder may have a note saying, “This item won’t ship until [X weeks/days from now],” whereas a product out of stock might say, “This item is currently unavailable.” One makes a promise while the other does not.
What Causes Backorders?
Backorders occur for a variety of reasons that are both within and out of a business’s control. Here are the three most common causes:
1. Manufacturer/Supplier Runs Out of Material
Situations like holidays and transportation hold-ups can cause supplier delays, which then creates shipment delays to the customer. Or, it can even be human error—the manufacturer and supplier may not have correctly counted their stock to meet the demand.
2. Demand Exceeds Supply
When people want the same thing at the same time, backorders are likely to occur. Whether it’s seasonal trends or a new marketing initiative that has created an unusually high demand for an item, you may not have enough supplies in stock to fulfill everyone’s orders.
3. Low Safety Stock
The extra products you keep on hand in case of emergencies is your safety stock. If your safety stock wasn’t prepared or counted correctly, this can cause backorders to pile up during your busy seasons.
How Long Do Backorders Usually Take?
Though it depends on the company and product, backordered items generally take about 14 days.
The customer pays for the item, and then the company or supplier is responsible for keeping them updated on the delivery timeline. The business may ship out other items they have in stock in the meantime or provide alternative options in case the customer needs something sooner.
If there’s a short turnaround time for fulfilling the backorders, it means the company is performing well. This can even help boost demand, increase your customer base, and create value around your product/brand.
But if the wait time is much longer, this can be problematic. Not only do you risk the sale, but you also risk losing customer loyalty.
What Can You Do to Avoid Backorders?
Emergencies are inevitable, but here are four practices you can start incorporating today to mitigate the negative effects of backorders down the road.
1. Implement Inventory Control Technology/Solutions
When you have thousands of orders and customers to manage, accuracy should never be an oversight. Look into trusted inventory management services that can help your team accurately track your stock levels and deliveries with the latest technologies.
Doing this not only gives you a reliable partner who can handle all of the new software/systems for you, but it also gives you access to real-time data that can help you make swift and smart decisions.
2. Build the Right Amount of Safety Stock
It’s not just about stocking up—it’s about stocking right. It’s always good to have extra products for any emergency, but keep in mind that this can increase your inventory-carrying costs. And when these costs rise, this can boost your product prices, which won’t sit well with customers.
So be sure to take time to determine a safety stock size that won’t blow your budget. Look into inventory management technology that can help you with this.
For example, inventory software can forecast demand and orders by establishing a safety stock point. Your team can set this high enough to cover unusual demand and any supplier issues.
3. Have Multiple Suppliers
In case your primary supplier isn’t available to meet your needs, you’ll always have back-ups who can jump in. Having multiple sources also provides competition and an incentive for each supplier to improve their prices and services.
4. Managing Supplier Lead Time Management
Your supplier lead time is the amount of time it takes for you to receive a product from the supplier. This time can depend on factors like how long it takes your supplier to acquire the raw materials, how long it takes them to make the product, and how long product inspection takes.
Coordinate with your suppliers to find ways to decrease the lead time. Especially if you’ve noticed they tend to deliver their products later than expected (for example, they say it will take them four weeks, but it really takes them six weeks), start having conversations on establishing better turnaround times. Maybe there are more efficient ways both parties can function and better meet demands.
Retaining Customers when Backorders DO Happen
Sometimes, even with the best intentions and careful planning, backorders happen. But the good news is, these three strategies can help your team retain customers despite the circumstances.
1. Communicate in a Timely Manner
When it comes to backorders, transparency and communication are key. Keeping your customers informed can help instill trust. You want to help them feel comfortable and confident to do business with you.
So be sure to:
- Provide manageable ETAs. This should be clearly written on your product pages or wherever your customers shop. By doing so, you’re establishing realistic expectations with customers upfront. Don’t leave them in the dark.
- Set up an email list. Collect email addresses from those who’d like to be notified once the product is back in stock. It’s a great way to streamline communication and establish excitement, urgency, and demand around the item.
- Send out automated emails and/or text messages on delivery. For those customers who have purchased your backorder, give them the option to opt-in on delivery updates. They will appreciate the timely communication.
2. Keep Your Customer Service Team Updated
If you have a call center or an internal customer support team, be sure to communicate with them on updates and new ETAs.
These individuals are the face and voice of your business. Ensure they are aware of the latest information, so there is no miscommunication or confusion on both the business and customer side.
Consider scheduling daily meetings with your customer support team to share updates and any concerns. Keeping an open conversation can help your staff share insights and brainstorm possible solutions on how to mitigate customer concerns. Streamlining these solutions can help your team efficiently solve issues.
3. Stay on Top of Your Inventory System
Using a reliable and accurate inventory management software can create happy customers. Why?
- You’re able to give accurate and up-to-date information. Inventory technology provides real-time data that gives customers the right information upfront and alleviates disappointments down the road.
- It helps maintain a shorter fulfillment time. A good system can analyze and determine the amount of stock needed to account for sales and special orders. It eliminates guesswork and brings peace of mind to your team. More importantly, you can minimize the fulfillment time and keep your customers satisfied.
Better Manage Your Inventory with Elite Ops
Being well-prepared and organized can help your team avoid the ramifications of backorders. But we understand this is easier said than done. And tackling this alone can get challenging.
Our team at Elite Ops will do the heavy lifting. We offer inventory management and shipping services that make operations like yours more efficient. Our team can help you prevent backorders and better manage your supplier and customer relationships. Learn more about our services and request a free quote today.