Mastering the Art of Backorders

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With eCommerce sites, you can be selling product 24 hours a day, 7 days a week. It’s a powerful retail option for businesses. Your online eCommerce presence can lead to a significant increase in sales. However, what happens if that increase in orders becomes hard to stay on top of? You want to fulfil orders, but inventory stock is flying off the shelves before you have time to replenish it. Should you pull the item off the eCommerce site? That could disgruntle customers and send them shopping elsewhere. Instead, a great retail hack is mastering the art of the backorder.

What is a backorder?

A backorder lets your customer shop on your online site and request an item, even when you don’t have the inventory stock in the warehouse. Instead, with a backorder, the customer requests the item and is prepared to wait for it.

A backorder is common with popular, newly released products, like electronics, cars or video games. A customer places an order for a product that is temporarily out of stock, with the knowledge that it will be delivered to them when it’s been replenished with the retailer.

What is a backorder rate?

When managing backorders, it’s important to be aware of your backorder rate. This figure looks at how many of your orders cannot be fulfilled when a customer makes them. If you have a high backorder rate, this means your customers will be waiting extra time while you try to fill their order. If they have to wait a long time, this can impact their overall experience, satisfaction level and loyalty. Try to keep your backorder rate low and customer satisfaction levels high.

How can a backorder impact your inventory management?

Backorders can add another layer of complexity to inventory management. Even if you have optimised your inventory stock levels, it’s hard to manage unprecedented demand. If an item you usually stock goes into backorder, you’re going to need a few processes in place in your warehouse to manage it.

You need to record all of your sales orders that have backorder products on them. Then you need to make a purchase order for the amount of backordered items with the relevant supplier. Once the backordered product is delivered, you need to match it up with your customer’s order and get it shipped out to them as soon as possible. This process is manageable when it’s only a few backorders, but when backordered products increase, you need to have an online inventory management system to take care of backorders automatically.

How can your business decrease the backorder rate?

If you find that backorders are a common theme, it might be time to analyse your inventory stock levels and how frequently you order inventory. Take a look at previous sales data and inventory data. Use this information to guide you. It can help you decide more optimum times for placing replenishment orders. If you are forgetting to place orders on time, look at automating the reorders through online inventory management software. Once a product dips below a certain level, it can automatically reorder a specified amount.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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