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eCommerce Tips & Trends

How To Prevent And Manage Backorders

Backorders are a costly pain in the neck for merchants. Here's how to avoid them.
How To Prevent And Manage Backorders
Ian Heinig

By Ian Heinig

 

May 5, 2021

You’re about to get paid. The customer is at checkout, cash in hand. But then...a message appears. Something to the tune of: “Were sorry. The selected item is currently on backorder and is unavailable. We’ll notify you when it becomes available.”

What does “backorder” mean? A backorder is when a customer tries (unsuccessfully) to purchase an item that neither you nor your supplier has in stock.

New releases from Apple, like the 2017 iPhone X, routinely go on backorder for weeks. Apple loyalists tolerate backorders due to the uniqueness of the iPhone. For most products, though, online shoppers won’t wait weeks for a restock. Instead they'll just bounce to find the same item elsewhere.

Preventing backorders is a crucial step of growing your eCommerce business. Keeping items on-hand is essential to your sales conversions but also your reliable reputation.

Easyship knows that inventory management is tough for eCommerce merchants. This is why our all-in-one shipping solution doubles as a real-time inventory management system. You get flawless inventory counts backed by fully integrated shipping activity so you can maintain visibility of stock and prevent stock outs.

And now, backorders.

What Is A Backorder?

A backorder is when a customer tries to order an item that neither you nor your supplier have in stock. In other words, demand for the product has outstripped supply. There's no telling exactly when you’ll get a restock, though. This means that backorders often lead to weeks of frustrated customers, missed sales, and reputational damage.

The Risks Of Backorders

  • Lost business: Delivery delays from backorders aren’t well tolerated by online shoppers. In today’s world of free two-day shipping, you’ll likely lose most of the sales that are thwarted by a backorder. Worse yet, it’ll be a competitor who claims your would-be customer.
  • Lost time: Resolving inventory shortages adds to your to-do list. You need to contact suppliers, communicate with customer support, and update your web store. You’ll also need to address all customer queries about the backorder promptly.
  • Lost money on shipping: Many eCommerce merchants assuage backorder frustrations by offering free expedited shipping for the backordered item. Unfortunately, this eats into your margins.

Backorder vs. Out of Stock

Backorders are subtly different from a stock out. A stock out is when you don’t possess an item in your inventory. Meaning, you can order it from a supplier and have it ready to ship in days.

If an item is on backorder, though, your supplier is also without. Before the item can reach you it must first reach the supplier, but it’s not clear then they’ll get more supply either.

In most cases, it’ll be weeks before you can sell a backordered item. Unfortunately, online shoppers are only willing to wait if you’re the only source for the item.

5 Reasons For Backorders And How to Fix Them

Cast your mind back to the beginning of the pandemic and you’ll recall the shock of hearing that, of all things, toilet paper was in short supply. Upon the announcement of lockdowns, demand had skyrocketed for TP. Most retailers were on backorder for TP due to manufacturer shortages.

There’s no hard and fast way to deal with backorders. This is because backorders arise from a handful of factors, only some of which are under your control. On average, expect a backorder to be resolved in two weeks or so.

The most common causes of backorders include:

1. Delays in order placement

If backorders are frequent, it suggests that your inventory management needs adjusting, or that your inventory management practices are a bit on the lean side.

To avoid backorders, merchants use reorder point formulas to trigger a re-stock when inventory reaches the point of replenishment. Other merchants restock at fixed times, such as weekly or bi-weekly. Those with lean inventory management keep no extra stock on hand and are especially prone to backorders.

Fix: Calculate your reorder point with a safety stock formula that accounts for average demand and the average lead time from suppliers. This way, you can reasonably estimate how much of an item to purchase and when to re-order so you never run out.

2. Errors in inventory management systems

Inaccurate inventory counts are a challenge for businesses. After all, shortages and excesses of inventory lead to headaches and profits losses. Oftentimes your inventory management system isn’t communicating with your other data sources, such as your POS system or shipping platform. Or maybe someone just goofed their hand-count.

Fix: Re-count your inventory by hand, then reconcile these numbers with those in your inventory system. Ideally, your inventory accuracy is around 95-100%. Any higher and you’re losing money from absorbing the cost of backorders, and the customer abandonment that follows.

3. Human error

Duh happens. Perhaps an employee fails to find an item then enters it as backordered, even though it's in stock. Or inventory gets misplaced or lost in your stocking area.  

Fix: Organize your inventory in a way that mitigates error. This could include improving your storeroom or warehouse layout. If you’re working with a 3PL, look for a new partner that makes fewer errors. Employee training is another quick way to address this point.

4. Factory/raw materials shortages

If your suppliers can’t fulfill orders, there’s not much you can do about it. Supplier-side shortages can arise from operational outages such as a strike or from problems sourcing raw materials.

For example, backorders for the Apple iPhone X went on for four weeks. Apple’s Chinese manufacturer ran low on the already scarce rare earth metals to produce the battery and glass screen.

Fix: Be proactive in communicating with customers about the reason for the backorder. Customers are more understanding when they understand it’s not your fault. If supplier-side backorders are a repeat occurrence, you may want to diversify your supplier network to avoid relying on a single source.

5. Natural disasters

Emergencies on a large scale like pandemics and inclement weather can disrupt supply lines, halt production of goods, and impede your receiving items.

Fix: Develop partnerships with suppliers in multiple geographic regions. This is effective oftentimes because natural disasters impact one area but leave other regions operating normally.

8 Best Practices For Managing Backorders

To avoid backorders, you should anticipate demand while finding new ways to keep stock on hand. You’ll also need to get savvy on dealing with frustrated customers, and work to salvage sales before they’re gone.

1. Forecast Demand

Demand forecasting is a business process in which you refer to historical sales data to predict the future order volume for each item in your inventory.

For example, a look in your store analytics reveals that you sell 100-150 hoodies all year long except in summer, when demand plummets. Clearly, you should avoid reordering hoodies in summer, but also ensure a steady supply of 150 hoodies in all other months, or you risk a backorder.

Once you’ve forecast demand for your SKUs, the next step is to establish a reorder point in your inventory management system. This way, whenever your stock runs low, you trigger a restock of the inventory that’s predicted to keep on selling.

2. Contact Suppliers Immediately

When demand for an item surges, waste no time in asking about a timeline for backorders. One of the only ways to recoup sales lost to backorders is to provide customers with a hard date for restocking. This is because uncertain reshipping dates are a no-go for buyers.

2. Update Your Site With Restock Details

Call attention to the backorder on the relevant site pages, including the product page and in checkout. Make it obvious that the item is on backorder, why, and when it will be ready to ship. If the backordered item is one of your top-sellers, you may also want to make an announcement via email and social media.

3. Communicate Proactively With Customers

It’s best to be transparent with customers about backorders. Place an alert on the product page of any backordered item, plus an estimate of the restock data. Noting the reason for backorder helps to defuse frustration and retain a portion of buyers and minimize negative reviews. For best conversions, ask would-be buyers to opt in to receive a notification when the item becomes available.

4. Notify Support

Create a protocol for handling customer interactions around backorders. Make sure these steps are followed by anyone who handles customer support. Whenever a backorder rears its ugly head, make sure that support knows when it happens so they can prepare accordingly.

5. Increase Stocking Capacity

Growing eCommerce merchants often store extra inventory in anticipation of periods of high demand. In other words, you take on “safety stock.”

For larger merchants or those without extra space, you can partner with third-party logistics providers (3PLs) to access warehouse space. You can even delegate the responsibility of fulfilling orders to your 3PL. This helps you to cut costs, accelerate delivery, and boost customer satisfaction. If you’re looking for a reliable warehousing partner, Easyship is happy to connect you with our trusted 3PL network at no charge.

6. Process Payment After Restocking

Issuing refunds is a headache and leaves a bad taste in the mouth of shoppers. Better to present buyers with the chance to buy when the item is restocked. Your credit card company may also prohibit you from charging for backordered and out-of-stock items anyhow.

7. Offer Partial Shipment

For orders with multiple items, it’s best to push ahead with in-stock items. Customers still want their other items, and customers are accustomed to split orders thanks to Amazon.

Of course, this can double the cost of shipping for either you or the customer. You’ll have to choose whether to ship the outstanding item on your dime, or risk asking the buyer to pay twice. Hint: customers won’t like paying twice for shipping.

8. Consider A Consolation

Customer loyalty is largely a function of merchant reliability. But customers are happy to forestall their judgments if you sweeten the deal. For example, by offering free shipping for the restock plus a discount on a future order. This tactic is more valid the higher value your items, the more you value customer loyalty, and the more you value your brand image.

Reducing eCommerce Backorders

In a positive light, backorders mean you have a product that’s in high demand. You’ve picked a winner! But in reality, the backorder definition/meaning for merchants is loss of business in the short-term, and loss of reputation in the long- term

Fortunately, most backorders can be prevented with inventory management practices like reorder point calculations. Additionally, it helps to use a shipping platform that integrates directly with your store's inventory management (like, say, Easyship). This way, you maintain inventory visibility at all times to better maintain stock and keep your bottom line up and going up.

Easyship is 100% free for all merchants shipping 100 orders or less per month. If you’re over that amount, you’ll save enough money with our pre-negotiated discounted shipping rates from all couriers (up to 70% off) to pay for Easyship, plus extra. If you want to try Easyship, you can create your free account here.

Backorder FAQ

How long will a backorder take?

About two weeks, on average.

Can you cancel a backordered item?

Yes, customers do it all the time.

What is the synonym of backorder?

Backorders aren’t the same as stock outs. A stock out is when the supplier has the item in stock and can send it to you immediately if you run out. BUt with backorders, neither you nor the supplier has the item in stock.