Last editedApr 20222 min read
Put simply, backorders are orders for goods that cannot be fulfilled because demand has exceeded supply. A backorder, also termed a backlog, is not available in the inventory. Instead, it’s either in production or may be available from a distributor. A backorder can arise due to poorinventory control, an unusual spike in demand, or unforeseeable supply chain issues.
In this post, we’ll reveal the backorder meaning and look at some common causes of backorders.
A backorder can be created when an order is in the process of being manufactured and is awaiting a component or components from a supplier. Furthermore, where multiple items are included on a single order, there may be a delay on one part of that order, thereby holding up the entire order.
Is the backorder meaning the same as ‘out of stock’?
A backorder shouldn’t be confused with an ‘out of stock’. When an item is out of stock, it’s supply or production is uncertain. For example, it may be that the product’s lifecycle has come to an end, and it’s being discontinued.
Backorders, on the other hand, are ‘in-process’ or already in planned production, and may have encountered a time lag for some reason. The items will be produced, but they’re not ready at the time an order is placed. Backorders are expected to be available within a reasonable timeframe, whereas an out-of-stock item may have no guaranteed date to restock.
What can cause a backorder?
The reasons for backorders can include:
High levels of demand: This is one of the most common reasons for a backorder. It could be the result of a seasonal holiday, or be caused by an external factor, like the weather, where people order more of an item than usual. It can also be the result of promotion in the media, leading to increased visibility and unexpected demand for a product.
Low safety stock: Even when inventory and supply chain management is automated, miscalculations can arise, leading to insufficient safety stock levels.
Issues with suppliers: In a global economy, where supply chains are geographically dispersed, supplier issues are inevitable. Problems could result from an act of God, strikes, or compliance – or it could be a result of a poor-quality supplier.
Complex supply chain: The more complex the supply chain for a backorder, the longer it will take to meet demand. Plus, it’s more likely a product will go out of stock before the backorders are filled.
How does a backorder work?
When a company takes an order (and possibly payment) for an item that is not in stock, it is taking a backorder. Once the backorder has been accepted, it is converted into apurchase order, which is then sent to the appropriate internal department, or to a vendor or distributor.
Retailers can then dropship items directly to customers. They can also take delivery of items, translate backorders to sales orders, and ship items to customers. Backorders can be easily handled, so long as relatively few SKUs are involved, and they’re at manageable levels. However, if the number of backorders grows, or in situations where there are multiple order processes involved, things can get tricky.
Backorders are not always a problem for retailers who have limited warehouse facilities, as long as they are able to confidently track availability of their items from suppliers.
Where this isn’t the case, backorders can spin out of control, frustrating customers and resulting in a decrease in market share. To help prevent backorders, it’s recommended to use automated order management software. These systems can provide retailers with accurate real-time data, allowing them to manage inventory flows more efficiently and ensure sufficient stock is always available.
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