What is Backorder?
A backorder is a product or a service order that can’t be fulfilled right away owing to a stock shortage. The product may not be available in the company’s inventory currently but is in the production phase. A backorder is also known as a company’s backlog.
Significance of Backorder in E-commerce Logistics
Backorders are a crucial component of order fulfillment and customer satisfaction. Thus, sellers must pay close attention to ensure their backorder process is effective. The impact of backorders is listed below:
- More storage space and reduced warehousing costs: Backorder goods may be chosen and packed as soon as it arrives at your warehouse. Thus, you save storage space and warehousing costs.
- Prepayment and increased cash flow: Businesses may benefit when a customer completes a backorder transaction because they receive payments right away. Hence, there is more cash flow in the business, even before orders are fulfilled.
- Creating hype: Customers may think that a product is popular and thus even more desirable when they see that it is temporarily out of stock. This can result in greater demand and revenue for backorder merchandise.
Pre-requisites for Backorder and How It Works
Businesses should fulfill certain requirements to practice backorder, which are as follows:
- Establishment of safety stock needs
- Reorder point identification
- Regular monitoring of top sellers
- More order inventory
Once these conditions are met, sellers can easily execute a few steps to finalize the backorder process. Here is a short summary of the activities involved:
- When the merchants run out of inventory, they order more supplies from suppliers or manufacturers to fulfill backorders.
- The suppliers deliver the required orders by the merchants to stock their inventories.
- As the merchants receive orders in their inventory, they deliver their backorders to the consumers at the earliest.
Use Case With Backorder
Suppose any new item released by tech giant ABC is frequently in high demand all over the world. Therefore, ABC runs out of its stocks quickly. Consequently, ABC’s website states that shipments will be made once the ordered items are available. Furthermore, longer delivery times are specified on online orders for popular items that are out of stock. Such situations are the perfect examples of backorders.
