You have two choices if you are having trouble stocking the shelves of your 3PL warehouse with finished products. You can either display an “out of stock” message or accept backorders for the item.
The benefits of accepting backorders can be substantial, and if you do not have a good supply chain to fulfill the order, you may suffer loss.
So In today’s article, I’ll compare the backorder vs out-of-stock items in the eCommerce industry. I’ll explain the pros and cons with examples and share a few points that will help you avoid or reduce backorders.
So without any further ado, let’s jump into the article.
On This Page
- 1 What is the Meaning of Backorder and Out of stock?
- 2 Backorder and Out-of-Stock Examples
- 3 Pros and Cons of Backordering
- 4 How to Avoid Backorders?
- 5 Wrapping Up
What is the Meaning of Backorder and Out of stock?
Backorders are the items that are presently out of stock, but you can order them, and they’ll be available soon. At the same time, the out-of-stock item means that the item is not available in stock.
Let’s dig deeper into the meaning of each.
A product on backorder means that it is currently unavailable but will be in the near future. But customers can still place orders for out-of-stock items, which will be shipped to you once the item(s) are back in stock and available for sale.
Products that are currently “backordered” have been scheduled and ordered by the manufacturer, but production has not yet begun, or shipping is taking time.
Out of Stock Meaning
An out-of-stock product means the seller has sold out of that particular product. If an item is out-of-stock, customers won’t be able to place an order for that item.
Backorder and Out-of-Stock Examples
Following are examples of backorder and out-of-stock products.
Miss. X wants to buy a flower, but she sees a message ‘Available on Backorder’ when she is about to buy it. She still can order it, but she will have to wait longer than usual to get the flower.
But if it takes way longer than expected to get the product, she may cancel the order or order it from another store.
Therefore, to retain customers in the face of intense competition, it is crucial to fulfilling backorders within the agreed-upon time frame.
Miss. X wants to buy flowers from a store, but the dealer doesn’t have them in stock. Miss. X will not be able to buy the flower until it is back in stock.
Pros and Cons of Backordering
Accepting backorders have pros and cons, and you need to be aware of them. So following are a few pros and cons of accepting backorders on your store.
Pros of Accepting Backorders
Following are a few pros or advantages of accepting backorders on your eCommerce store.
1. Product Demand: If a product is on backorder and is getting enough sales, it shows how demanding the product is and provides you with valuable insights that can help you in decision-making for future productions.
2. Improved Customer Relationship: Taking backorders is a great way to get in touch with your customers and strengthen your bonds with them. Customers can be notified of the progress of their orders.
Putting in the extra effort to connect with your customers personally can help you keep them as customers for the long haul.
3. Less Inventory Storage Cost: If an item is on backorder, and you can fulfill it on time, you can reduce the inventory storage costs. You will only need to store a small amount of stock, and you can store the product quantity as users are ordering.
4. Improved Cash Flow: When an item is on backorder, users can still order it, but they’ll get it when it is back in stock. This will help you get the payment from the customers in advance and utilize it to improve stock management and other tasks.
Cons of Accepting Backorders
Following are a few cons or disadvantages of accepting backorders on your eCommerce store.
1. Risk of Order Cancellation: Backorders also increase the possibility of order cancellation. Customers can always change their minds or discover an alternate source for the back-ordered item. This may cause a drop in business.
2. Increased Customer Support: Backorders can cause an increase in calls to customer service. Customers may wish to cancel their orders or ask you questions about their back-ordered items. This can add extra work and time to your plate.
3. Cause You to Loss Potential Customers: Backorders can cause you to lose potential customers if they have to wait for a long to get the item. They may get the same item from another store.
4. Payment Processing Issues: There may be problems with the payment processing because of the backorders. You could end up with unpaid invoices if customers decide to cancel their backorders. Inadequate cash flow can put a strain on your financial stability.
How to Avoid Backorders?
If you want to avoid backorders, you can do a few things.
Display the Lead Times
You can display lead times to avoid backorders and keep your customer base. Lead time will notify the customers that the product will be back in stock soon.
And users can order the product when it is back in stock. It will help you avoid any backorders, and in case if the user still places the order, the user will already be notified of the product lead time.
Utilize Forecasting tools
Forecasting tools allow businesses to anticipate consumer demand and adjust output accordingly. To avoid backorders, this can help you maintain a sufficient stock of products.
Forecasting lets a business look at past trends and its current position and predicts the future. Using data and market trends to accurately predict your business’s potential can help you set and meet objectives.
Keep an Eye on Inventory Levels for Popular Items
Keep an eye on the stock levels of the most in-demand items. Things may go differently than planned in e-commerce, so keeping a close eye on stock levels to guide your purchase is essential.
If there’s an item that is low in stock, you should contact your supplier and get new stock of it before the previous one ends.
Increase Stocking Capacity
You can maximize your warehouse space’s efficiency and financial resources by maintaining just the right amount of safety stock.
You could always order in bulk to prevent stockouts, but doing so can fill up storage space, raise inventory carrying costs, and incur backorder costs, all of which tie up capital that could be better put to use elsewhere.
Have Multiple Suppliers and Build Good Relationships
By establishing relationships with multiple manufacturers, you increase the likelihood of having a backup source ready to go in the event that your primary provider experiences production delays.
That’s it for today’s guide.
Now you know the difference between backorder vs out-of-stock products. Backorders can be a significant hassle for companies, but there are ways to prevent them.
Backorders are avoided, and business continuity is maintained through forecasting tools, supplier relationships, and enhanced customer communication.
The patterns of customers’ backorders can reveal helpful information about consumer preferences and present new sales possibilities. Backorders can be a net positive for a company if appropriately managed.