The Power of Backorders: Turning Stock Shortages into a Competitive Advantage

No company wants to lose a sale because a product is out of stock in today’s competitive market. But when supply chain errors happen, or a surge in demand occurs, stockouts are inevitable. Companies have two choices: stop selling the product or let customers backorder. Backorders can be a powerful tool when properly handled. They can help you keep sales and maintain customer loyalty, even when stock runs low.

Backorders happen when a customer orders a product temporarily out of stock, promising it will be shipped as soon as stock is available. While it might seem like a last attempt, back ordering can offer a range of benefits. It ensures that customers who want your product still have the opportunity to buy it, even if it takes a bit longer to receive it. For businesses, it means avoiding lost sales and protecting happy customers who wait.

For India’s leading companies, from e-commerce and retail to manufacturing and technology, correctly managing backorders is vital to keeping customers happy while improving sales.

What Exactly Is a Backorder?

At its core, a backorder means a product is temporarily unavailable but can still be purchased, with the promise of shipping later. Customers are informed about the delay upfront and are usually given an expected delivery timeframe. This is different from an “out of stock” situation, where a product is no longer available for purchase, and there’s no clear plan for when or if it will return.

Backorders are a common practice across many industries. Think of the automotive industry, where customers regularly order cars that have yet to be built. E-commerce, electronics, and consumer goods companies also use backorders to manage fluctuating demand and supply chain issues.

Why Do Backorders Happen?

There are several reasons why a company might have backorders, some of which can be prevented and others just part of doing business. Some of the most common causes are:

1. Sudden Surges in Demand: Sometimes, demand for a product spikes suddenly, leaving stock levels depleted faster than expected. This might happen during a viral promotion after a product becomes viral on social media or during seasonal sales.
2. Backorder Disruptions: Irregular supplier delays, transport issues, or raw material shortages can slow the restocking process and result in backorders.
3. Poor Inventory Forecasting: Businesses can run out of products sooner if they ignore future demand.
4. Production Delays: Especially in industries where products have long manufacturing lead times, delays on the production floor due to labor shortages, machinery failures, or supplier problems can give rise to backorders.

The Pros and Cons of Backorders

While the idea of telling customers they’ll have to wait for their purchase may not sound ideal, offering backorders has several advantages. Here’s how backorders can work in your favor:

Advantages of Allowing Backorders:

1. Maintains Sales During Stockouts: Backorders allow companies to continue accepting orders for in-demand products, even when they don’t have them in stock. This keeps revenue flowing and prevents customers from turning to competitors.
2. Improves Cash Flow: You can pay for back ordered items upfront, depending on your payment structure. This helps your cash flow during inventory-tight times.
3. Fosters Customer Loyalty: If customers trust your company to fulfill their orders, they will wait rather than seek replacements. If handled well, backorders can improve customer relationships.
4. Provides Demand Insights: Backorders clearly indicate which products are in the highest demand. This can help you better plan your products in the future and make smarter decisions about which products to focus on.

Challenges and Risks:

1. Customer Frustration: No one likes waiting for their order, and customers may cancel their orders or leave negative reviews if the wait is too long. It’s a must to keep them informed and manage their expectations carefully.
2. Increased Complexity: Managing backorders complicates your order and supply management systems. If you’re not tracking them closely, things can quickly get confusing, resulting in further delays and frustrated customers.
3. Customer Service Headaches: Backorders often lead to increased customer inquiries, which can stress your service teams, especially if you lack good communication channels.

Best Practices for Managing Backorders

Companies must implement essential best practices to turn backorders from a potential problem into a positive advantage. Here’s how to properly manage backorders and ensure your customers stay happy while replenishing stock:

Communicate Clearly and Early

A transparent process is the basis of successful backorder management. Customers should know immediately if a product is on backorder and when it will be delivered. This prevents several surprises and keeps customers informed throughout the process.

• Display clear backorder status for each product on your website.
• Send auto-generated emails when an order is placed, with updates on restocking and delivery times.

Use Demand Planning Tools

Investing in demand planning can help you avoid backorders by ensuring you have the proper share of stock on hand to meet customer needs. By looking at historical data and market trends, you can better recognize sales patterns and prepare accordingly.

• Implement inventory management software with demand planning capabilities.
• Regularly review your sales data to adjust stock levels in advance of high-demand periods

Maintain a safe stock

Safety stock is an extra level of inventory for emergencies. This allows you to continue selling products even when your stock runs low.

• Based on historical sales data and lead times, calculate how much safety stock is needed.
• Adjust your safety stock levels regularly to match demand changes.

Partner with trusted suppliers

Strong relationships with your suppliers can reduce backorder risk. Communicate regularly with suppliers to ensure they know your stock needs and have backup suppliers if one falls short.

• Work with multiple suppliers to ensure flexibility and avoid disruptions.
• Plan and work with suppliers to reduce delivery delays

Take advantage of technology.

Inventory management software can help you track stock levels in real-time, process backorders easily, and prevent further delays. It also ensures that this process reduces human error and provides customer information throughout the fulfillment process.

• Use real-time tracking to prevent overselling products you don’t have.
• Enhance the fulfillment process once stock is updated to get orders out quickly.

Offer options and incentives.

If a backorder takes longer than expected, offering customers alternative products or incentives can keep them happy and prevent order cancellations. Discounts, free shipping, or bonus offers are powerful ways to show appreciation for their patience.

• Suggest similar products that are in stock.
• Offer incentives, such as coupons for future buys or fast shipping on back-ordered items.

How Basiq360 Can Help

Backorders, when managed well, can turn potential losses into valuable opportunities for your business. But it requires the right tools and methods. That’s where Basiq360 comes in. Our automated solutions simplify your post-manufacturing processes, from stock management to backorder fulfillment. With real-time tracking, demand forecasting, and seamless integration with your supply chain, Basiq360 helps you stay ahead of the curve. Ready to improve your business’ backorder management and keep your customers satisfied? Contact us today for a free demo and discover how we can improve your operations for the better.