Backorders are a common occurrence in retail. They happen when an item that a customer orders is not currently in stock and has a delayed delivery date. Backorders can be both a boon and a bane for retailers. On one hand, they allow retailers to keep customers happy by promising to deliver the product once it is back in stock. On the other hand, managing backorders can be a headache for finance and logistics teams. In this guide, we will discuss how to manage backorders effectively and prevent them from happening in the first place.
What are Backorders?
A backorder is generated when an order cannot be fulfilled at the time of purchase because the item is not in the seller’s current inventory. However, the item is still in production or available from the distributor. Backorders generally happen when demand exceeds supply, whether that’s due to a successful marketing campaign…
or seasonal trends. They could also occur when there is a disruption in the supply chain due to unforeseen circumstances such as extreme weather, challenges with transportation, political upheavals, a shortage of raw materials or a supplier going out of business.
Benefits of Backorders Backorders may benefit companies in a few ways.
Retailers with limited warehouse capacity may not be able to hold a large amount of stock, but if they can confidently track availability of items from suppliers, they can avoid overcrowding and incurring excess storage costs while confidently accepting backorders.
Sometimes, companies see an unexpected surge in demand for a product. Again, depending on visibility into availability of additional stock, accepting backorders allows the retailer to make those sales and keep customers happy. Causes of Backorders Backorders generally happen when demand exceeds supply…
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