Backorder management is always challenging but presents an opportunity to improve customer satisfaction. Nowadays, in such a fast market, it becomes even more challenging to understand the nitty-gritty of dealing with backorders while maintaining trust in customers and operating efficiency. The following blog is designed to guide you with important tips on retail management and strategies while you meet your customers’ expectations and streamline the process of managing inventory.
What is a Backorder?
A backorder occurs when a customer places an order for a product that is not currently in stock but is expected to be available at a later date. In retail management, backorders are a common occurrence, especially for high-demand items or products impacted by supply chain delays. Unlike “out-of-stock” items, backorders indicate that the product will be restocked, and customers can still purchase it.
Backorders vs. Out-of-Stock Products: What’s the Difference?
The difference between backorders and out-of-stock items is in terms of availability and fulfilment status.
Backorders: The product is temporarily out of stock but will be restocked shortly. Customers can order and wait for delivery.
Out-of-stock products: This product is out of stock and is not restocked anytime soon. Customers are unable to place orders.
From a retail management perspective, offering backorders provides an opportunity to capture sales that might otherwise be lost.
Backorder vs. Backlog: What’s the Difference?
While both terms relate to unfulfilled orders, they are not interchangeable:
- Backorders refer to customer orders awaiting stock replenishment.
- Backlogs involve a buildup of orders due to operational inefficiencies, such as delays in processing or production.
Retail management strategies for handling backlogs often focus on improving internal operations, while backorders require a focus on supply chain and customer communication.
The Risks and Benefits of Backorders
Benefits:
- Preserve Revenue: Backorders allow retailers to protect the sale even if inventory is sold out.
- Gauge Product Demand: Frequent backorders for certain items can signal high demand, guiding future inventory planning.
- Increase customer loyalty: offering backorders on transparent communication might retain customers who otherwise go elsewhere.
Risks:
- Customer dissatisfaction: Delays in order fulfilment can lead to frustration and loss of trust.
- Logistical Stress: Handling backorders necessitates very close monitoring and coordination between teams.
- Inventory Management Problems: Inefficient forecasting may worsen backorder cases and result in extended delays.
Effective retail management minimizes such risks while benefiting from the benefits.
What Causes Backorders?
- Surprise Surges in Demand: The overnight success of a product can far exceed the stock.
- Supply Chain Delays: Manufacturing disorders, shipping problems, or raw material shortages can lead to backorders.
- Inaccurate Demand Forecasting: Misjudging customer demand can result in understocking.
- Limited Capacity For Production: This means they cannot fulfil all the bulk orders.
- Seasonal Trends: Products tied to seasonal demand often face backorders during peak periods.
How to Manage Backorders
Decide Whether to Offer Backorders
Not all businesses are suited to handle backorders. Retailers must evaluate factors like supply chain reliability, product demand, and operational capacity. If your retail management infrastructure can handle the challenges, backorders can be a profitable strategy.
Estimate the Lead Time for Backorders
Accurate lead time estimation is critical for customer satisfaction. Work with suppliers to determine realistic timelines and factor in potential delays. Share these lead times clearly with customers to set proper expectations.
Anticipate Order Demand
Using demand forecasting tools, analyze sales trends, historical data, and market insights to anticipate future demand. This proactive retail management approach can minimize backorders and enhance inventory planning.
Prepare for Backorders
Streamline your systems to handle backorders efficiently. This includes integrating inventory management software with order processing systems to track backordered items, ensuring no orders slip through the cracks.
Add Any Backorder Information to Product Listings
Transparency is key to maintaining trust. Clearly indicate on product pages if an item is on backorder, along with expected availability dates. This retail management practice ensures customers are fully informed before purchasing.
Keep Customers Aware
Regular communication can help in dealing with frustration arising from backorders. Send regular email notifications or text updates to customers regarding their order status and any changes to the expected delivery time.
Maintain Accurate Inventory Records
Precise inventory tracking prevents overselling and ensures smoother operations. Invest in robust inventory management tools that update stock levels in real time. This not only aids backorder management but is also a cornerstone of effective retail management.
Optimize Fulfillment Operations
Efficient fulfilment is vital to minimizing backorder delays. Evaluate warehouse workflows, shipping partners, and supplier performance to identify areas for improvement. Retail management teams that focus on fulfilment can drastically reduce the time customers wait for back-ordered items.
Conclusion
Managing backorders is the art and science of retail management. Retailers can turn challenges into opportunities when they understand what backorders mean, how to differentiate them from out-of-stock and backlogs, and how to be proactive in dealing with them. Open communication, accurate forecasting, and a sound inventory system form the bedrock of backorder success
