What Is Availability Available On Backorder?

What is a Backorder?

A backorder occurs when a customer places an order for a product that is not currently in stock. The retailer accepts the order, but fulfillment of the order is delayed until the product becomes available again (Investopedia, 2022).

There are two main reasons why products go on backorder (Red Stag Fulfillment, 2022):

  • High demand – When a product is very popular, retailers may run out of stock quickly.
  • Supply chain issues – Problems with manufacturing or distribution can cause shortages.

Backorders indicate that demand is exceeding supply for a particular item. While this suggests the product is popular, backorders can frustrate customers who have to wait for their orders to be fulfilled (ShipBob, 2022). Setting proper expectations and keeping customers informed is important when managing backordered items.

Causes of Backorders

There are several common reasons why a product may go on backorder (Sources: https://www.netsuite.com/portal/resource/articles/inventory-management/backorder.shtml, https://www.shipbob.com/inventory-kpis/backorder/):

High demand – When a product is more popular than expected, inventory can sell out quickly before suppliers can replenish. Trending products or holiday merchandise are prone to backorders due to spikes in customer demand.

Manufacturing delays – Problems at factories, like supply shortages or equipment breakdowns, can cause delays in production. This leads to fewer finished goods being available to ship to retailers.

Supply chain issues – Disruptions anywhere along the supply chain, whether with raw materials, transportation, or warehousing, restrict the flow of goods. Supply chain problems have become more common, making backorders more likely.

Unexpectedly popular products – When a new product far exceeds sales projections, retailers may not have ordered enough initial inventory. Hot products can quickly go out of stock before reorders arrive.

Communicating with Customers

When a product is temporarily unavailable due to a backorder, it’s crucial for companies to communicate openly and frequently with customers. Setting clear expectations upfront prevents confusion and frustration down the road. The keywords are transparency and proactive updates.

On product pages, be sure to note if an item is on backorder and provide an estimated availability timeline if possible (Grit Global, 2021). Prominently displaying this info allows customers to make informed decisions. Send confirmation emails reiterating the situation plus alternative options like expedited shipping for in-stock items.

Provide frequent email updates about backorder status, even if just to say there are no changes. Per CXL, overcommunication is key – don’t leave customers guessing. Offer clear options like waiting for the backorder, choosing a replacement item, or cancelling for a full refund. Outline the policies, timeframes, and process (Ship Science, 2023).

The goal is ensuring customers feel heard, respected, and empowered to make the choice right for them. Transparent communication transforms a frustrating situation into an opportunity to provide great service and build loyalty.

Customer Frustration

Backorders can lead to high levels of customer frustration due to lost sales, delays in orders, lack of communication, and a perceived lack of care from the company (NPR, 2023). Research shows that 40% of consumers have held back on purchasing items online since the pandemic began due to returns frustrations, while 42% shared that the returns process amid COVID-19 may negatively impact their likelihood to shop with a retailer again (Inmar, 2020). One survey found that in many cases when an item is unexpectedly backordered, customers will buy less from that retailer in the future (WSJ, 2022). This illustrates how critical it is for companies to properly manage customer expectations around backorders and communicate transparently to maintain loyalty.

Strategies to Minimize Backorders

There are several strategies businesses can implement to minimize the occurrence of backorders:

strategies like improving supply chain resilience and limiting overselling can help reduce problematic backorders.

Improving the supply chain is key. Identifying potential bottlenecks and weak points in the supply chain and strengthening them can help avoid inventory shortages leading to backorders. This may involve adding suppliers, streamlining transportation, or improving communication between parties.

Increasing safety stock levels provides a buffer so even if demand exceeds forecasts there is extra inventory on hand. Determining optimal safety stock levels requires looking at historical sales volatility and lead times.

Adding alternative suppliers or secondary sources for key products provides redundancy. If one supplier experiences an issue, another supplier can help avoid a stockout.
But balancing multiple suppliers requires excellent supplier relationship management.

Limiting overselling or taking more orders than inventory allows is also important. Some ecommerce platforms can automatically limit overselling. If not, order maximums and visible inventory tracking helps avoid overselling.

Careful inventory management, supply chain improvements, and overselling avoidance are proven ways companies can minimize problematic backorder situations.

Managing Inventory

Careful inventory management is crucial for minimizing backorders. This involves accurately forecasting demand based on past sales, marketing efforts, and industry trends. Tracking sales velocity for each product also provides critical data for optimizing stock levels.

Aim to maintain sufficient safety stock to account for fluctuations in demand without overstocking. Work closely with suppliers to understand their production capacity and lead times for replenishments. Monitor inventory daily across multiple locations to enable prompt transfers when needed.

Leveraging inventory management software provides real-time visibility and powerful analytics to balance stock across products. Setting reorder points and automating purchase orders further streamlines replenishment. With robust systems in place, retailers can strategically manage inventory to avoid stockouts and backorders.

According to research by Fulfyld, real-time alerts from warehouse management systems can immediately flag low stock levels before they lead to backorders. Careful inventory management provides flexibility to meet demand fluctuations and minimize customer-facing stockouts.[1]

Adding Flexibility

One strategy to minimize backorders is to add flexibility to manufacturing and inventory systems. Companies can reduce reliance on a single manufacturing location by diversifying production across multiple facilities. According to research by Shukar (2021), “Sometimes, different companies combine their manufacturing plants for common drugs to minimize costs and gain significant benefits.” Spreading manufacturing between locations safeguards against disruptions and shortages if a problem emerges at any one plant.

Companies can also design products with customizable or modular components, allowing some flexibility in materials sourcing and production. The FDA’s strategic plan states “By working closely with manufacturers experiencing problems, as well as potential alternative manufacturers, and by exercising regulatory flexibility in sourcing of raw materials, packaging components and finished drug product, shortages of medically necessary drug products can often be prevented.” Building versatility into manufacturing through modular design and alternative suppliers makes the supply chain more resilient.

Overall, diversifying production capacity and enabling substitutions within the product design helps minimize reliance on any single component or facility. This added flexibility buffers against unpredictable shortages and disruptions.

Providing Alternatives

When an item is currently unavailable due to being on backorder, retailers can provide alternative options to customers to meet their needs. This helps turn a potentially frustrating situation into a positive customer experience.

One option is to suggest substitute products that are currently in stock and fulfill a similar need as the original item. The retailer can point out comparable features and explain why the suggested item is a good alternative. Providing substitution ideas shows the customer the retailer aims to be helpful.

Another alternative is to offer a discount on the backordered item to incentivize the customer to wait for it to come back in stock. Retailers can provide a promo code for a percentage off the item’s regular price. This discount makes up for the inconvenience of waiting and encourages the customer to stick with their initial purchase.

Expedited shipping is a third option retailers can provide if the backordered item will soon be restocked. Offering faster delivery like next day or 2-day shipping can appease customers irritated by delays. The quicker shipping helps make up for the long wait time.

Finally, some retailers offer gift cards if an item won’t be back in stock for an extended period. Providing a gift card for the backorder amount or a percentage above it gives customers credit to select another product. This retains the customer’s business despite not having the original item available.

Overall, suggesting substitute items, discounts, expedited delivery, and gift cards show customers their patience and loyalty are valued. [https://www.flexport.com/blog/how-to-encourage-sales-of-backordered-products/] These alternatives turn a disappointing situation into a positive experience where the customer’s needs are still met.

Setting Expectations

One of the most important things a business can do when items are backordered is to set clear expectations with customers upfront. This begins with ecommerce stores having updated policies and disclaimers on product pages indicating that items may be backordered and providing estimated ship dates. For example, listing a banner or pop-up on product pages saying “This item ships within 4-6 weeks” helps set realistic timeframes.

Order confirmation emails should also reiterate ship times if an item is backordered, rather than just showing a generic “processing” status. Providing an estimated delivery date, even if it’s 4-6 weeks out, helps ease customer concerns over when they can expect to receive their purchase. Retailers should also send shipping confirmation emails with tracking info when backordered items do ship. Proactively setting expectations helps minimize customer frustrations with backorders.

Customer Loyalty

Winning back customer trust and loyalty after a backorder can be challenging, but it is possible. According to ZenDesk, apologizing quickly and sincerely is crucial [1]. Admitting the mistake, taking ownership, and expressing regret goes a long way. Avoid making excuses or shifting blame. Customers want to feel heard and understood.

Companies should also consider providing customers an offer as compensation for the inconvenience, such as a discount on their next purchase or free shipping [1]. Rewards programs and special promotions can help sweeten the situation. The goal is demonstrating the customer’s ongoing value.

Most importantly, actions speak louder than words. Companies need to double down on customer service and product quality moving forward [2]. Consistently meet or exceed expectations to rebuild loyalty. With time and effort, customers’ faith can be restored.

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