Understanding Backorders: What Does 'Backordered' Mean?

Virginia Miller

August 26, 2024

In this article

In the ever-evolving realms of retail and e-commerce, one concept that often pops up is 'backordered,' a term that might stir up confusion and frustration among customers anticipating their purchases. Understanding backorders is crucial for consumers to navigate their shopping experiences and businesses striving to maintain customer satisfaction and streamline inventory management. In this article, we delve into the intricacies of what it means when a product is backordered, how it impacts customer experience, and the tools and strategies businesses can employ to manage backorders effectively. We'll explore everything from the basic distinctions between backordered and out-of-stock items to implementing technological advancements and legal considerations, ultimately painting a comprehensive picture of backordering that informs consumers and aids retailers in optimizing their operations.

Understanding and Managing Backorders in Retail and E-Commerce

What is a Backorder?

A backorder occurs when a customer places an order for a product that is currently out-of-stock. The retailer accepts the order regardless and promises delivery once the item is back in stock. Backorders allow retailers to capture additional sales despite inventory shortages.

Key Features of Backorders

There are two key features of backorders in retail and e-commerce:

The product is unavailable to ship immediately because it is out-of-stock
The retailer promises to fulfill the order once inventory becomes available

Impact of Backorders on Customers

Backorders can frustrate customers who expect immediate fulfillment. Lack of updates and unclear timelines further reduces satisfaction. To mitigate, retailers should:

Provide order status updates
Set clear expectations around anticipated delivery dates
Offer options like cancellations or substitutions

Strategies for Customer Retention

Retailers can focus on open communication, transparency, and flexibility to retain customers through a backorder event. Building goodwill also increases patience with the delay.

Using Backorders in Inventory Management

Analyzing backorder data allows retailers to identify fast-selling items that need expanded inventory. It also informs decisions around safety stock levels, reorder points, and future stocking plans.

Technology Solutions

Inventory management software provides invaluable tracking, analytics, and demand forecasting to minimize backorders. Integrations with order management and POS systems allow full visibility.

Fulfilling Backorders

An organized backorder process is crucial for faster order completion. Steps may include:

Tagging backordered items in ordering systems
Monitoring stock availability daily
Automatically triggering fulfillment when items are in-stock

First-In, First-Out Method

The FIFO method ships backordered items based on the order they were received. This prevents unfairly delaying some customers over others.

Legal and Ethical Considerations

Transparency around backorders is an ethical obligation and often a legal requirement. Retailers should clearly communicate:

Item availability expectations
Anticipated delivery timelines
Customer rights and options

FTC Mail Order Rule

In the U.S., the Mail Order Rule mandates that retailers notify customers of shipping delays and offer options to consent to the delay or cancel without penalty.

Preventing and Reducing Backorders

While some backorders are inevitable, focusing on the following areas can limit their frequency and duration:

Accurate demand forecasting
Carefully planned inventory buffers
Strong relationships with multiple suppliers
Agile supply chain capabilities

FAQs

What are some best practices for communicating with customers about backorders?

Be transparent about inventory status upfront. Provide order status updates via email or account dashboards. Give clear expectations on anticipated delivery dates. Highlight alternative product options or substitution policies.

How can backorder data be used to improve inventory management?

Analyze which items are most frequently backordered to identify fast-moving SKUs to boost stock of. Let backorder volume inform decisions around safety stock levels, minimum reorder quantities, and future purchasing plans.

What shipping methods work best for fulfilling backorders?

Leverage free economy shipping for backorders to manage costs. Upgrade fulfilled backorders to faster premium shipping as a goodwill gesture. Provide options for expedited delivery at an additional fee.

What are some customer retention strategies when items are temporarily out-of-stock?

Communicate proactively about inventory status and expected delivery timeline. Offer relevant alternate or substitute items. Provide an incentive like discounts or free gifts upon delivery. Follow up post-delivery to encourage future purchases.

What are the risks of opaque backorder handling?

Lack of transparency around backorders erodes consumer trust over time. It also increases cart abandonment rates when shoppers aren’t aware that items aren’t readily shippable. Explicit backorder communication sets proper expectations.

How can technology help manage backorder situations?

Inventory management software provides crucial inventory tracking, analytics, and demand forecasting. Order management systems allow tagging of backordered purchases for order prioritization. Integrated systems enable automation around some backorder processes.

What legal requirements apply to backorder transparency?

The FTC Mail Order Rule requires notification to customers of shipping delays with backordered items after 30 days. Retailers must outline customer options like consenting to ongoing delay or cancelling without penalty.

What strategies can reduce the volume of backorders?

Accurate demand projections, safety stock buffers, diversified supplier network, flexible supply chain, and inventory optimization based on historical sales data and trends are key elements to minimizing backorders over time.