A backorder status represents a temporary disconnect where an item’s popularity or a break in the supply chain means immediate fulfillment is not possible. This common inventory status functions by allowing businesses to manage complex logistics while meeting consumer demand. This article will explore how backorders occur and the strategies used by businesses to navigate the resulting operational challenges.
What Exactly Is a Backorder?
A backorder is an order placed for a product that is currently out of the seller’s stock but is expected to be replenished and fulfilled at a later date. This status is generally applied to regularly stocked items where production is ongoing, and a replenishment timeline is reasonably certain.
The backorder status allows a company to retain the sale and gauge accurate demand for an item that has temporarily exceeded its available supply. For the business, it serves as a mechanism to continue generating revenue without having to hold excessive inventory, especially in systems that rely on lean or just-in-time inventory management. The customer essentially reserves a unit from the next incoming shipment, acknowledging an extended delivery timeline at the point of purchase.
Why Do Backorders Occur?
Backorders often stem from a sudden, unexpected spike in market demand, where a product’s popularity outpaces a company’s ability to produce or acquire stock. This demand surge can be due to successful marketing, seasonal trends, or an unforeseen event that drives mass purchasing. A business may also enter a backorder status intentionally, particularly when operating with a just-in-time inventory model that aims to keep warehouse stock at minimal levels to reduce storage costs.
Supply chain disruptions are a common unintentional cause, including manufacturing delays or component shortages from suppliers. Logistics bottlenecks, such as severe weather events or transportation issues, can also impede the timely delivery of goods to the retailer’s fulfillment center. Less accurate demand forecasting by the company can lead to insufficient safety stock, compounding the issue when unexpected sales volumes occur.
Backorder vs. Out-of-Stock vs. Preorder
These three terms represent distinct phases in a product’s inventory status. A backorder is an order for a product that was previously released and is currently out of stock, but production is active and a replenishment date is expected. The customer places an order now for fulfillment later, securing their place in the queue for the next batch.
An out-of-stock item, by contrast, is unavailable for immediate purchase, and often the retailer has no guaranteed or clear timeline for when, or if, it will return to inventory. Orders usually cannot be placed for out-of-stock products, forcing the customer to check back later or seek an alternative.
A preorder is an order placed for a product that has not yet been officially manufactured or released to the market. Preorders are used to gauge initial demand and secure capital before the official launch date, whereas backorders manage supply shortfalls after a product is already on the market.
The Customer Journey When Placing a Backorder
The customer experience begins with transparent communication, where the retailer must clearly indicate the item is backordered and provide an estimated time of arrival (ETA) at the point of sale. The payment process is a crucial point of difference, as some businesses charge immediately, while a better practice is to only authorize the payment and charge the customer’s card when the item is ready to ship.
Throughout the waiting period, the business should maintain proactive communication protocols, sending automated updates via email or SMS if the ETA changes or as the item moves through the fulfillment process. Customers must be informed of any substantial delays and have the right to cancel their order if the fulfillment timeline becomes unacceptable. Federal Trade Commission rules require merchants to either issue a refund or obtain the customer’s explicit consent to the new delivery date if an order is delayed beyond the initially promised window.
How Businesses Effectively Manage Backlogs
Effective backorder management centers on two main areas: operational efficiency and customer retention. On the operational side, businesses must utilize robust inventory management software that provides real-time data to accurately forecast demand and set appropriate reorder points. This technology helps minimize future occurrences and ensures the earliest possible fulfillment of existing backorders.
To maintain customer satisfaction, businesses must prioritize orders on a first-come, first-served basis once new stock arrives, ensuring fairness in the fulfillment process. Implementing a comprehensive communication plan is also necessary, which includes sending regular status updates and providing accurate ETAs. For extended delays, some companies may offer incentives, such as shipping upgrades, complimentary small items, or a discount on a future purchase, to acknowledge the inconvenience and maintain loyalty.