A key element of any effective inventory management framework is managing backorders vs. out of stock product statuses. Deciding whether or not to place a product on backorder or label it as "out of stock" depends on your business model and customer expectations.
To help you understand which method is right for your business, we’ve compiled a list of some of the most common out-of-stock vs. backorder questions and answers as well as the pros and cons of each inventory management strategy.
What Does Backorder Mean?
What is a backorder? Put simply, a backordered product is currently unavailable but will be restocked in the future. Backordering is usually offered when demand exceeds current inventory or during supply chain disruptions.
By accepting backorders, your business can ensure your customers are not lost to competitors. This solution provides a proactive approach to managing inventory challenges, allowing for continued sales and customer interest. It also prevents immediate revenue loss while you restock.
What Does Out Of Stock Mean?
As the name suggests, the term "out of stock" indicates that the item in question is unavailable for the foreseeable future. In other words, customers are only able to purchase such products once (and if) they have been restocked. Out-of-stock situations can often be frustrating for clients, leading to customer disappointment or even the loss of future business.
Out of Stock vs. Backorder
The short answer to "Does backorder mean out of stock?" is yes. However, the main difference between backorder vs. out-of-stock is in if and when the item will be available in the future. Backorder means temporary unavailability with a commitment to restock. It refers to a delay in fulfillment rather than a complete absence. On the other hand, out-of-stock indicates that the unavailable item is not planned to be restocked.
Backorder vs. Pre-Order
While both terms relate to items that aren't in stock yet, there's a quite obvious nuance in preorder vs. backorder. A "pre-order" occurs when customers buy items before they are officially released. Pre-ordering helps businesses gauge demand and secure necessary products ahead of time. A "backorder" happens when an already released product is temporarily out of stock but can be reserved for future delivery.
Back Order vs. Out of Stock vs. Pre-Order: Comparison Table
To get a tangible idea of the differences of the 3 models, take a look at the table below:
Feature | Backorder | Out of Stock | Pre-Order |
|---|---|---|---|
Definition | Product temporarily unavailable but will be restocked in the future. | Product is currently unavailable for purchase and isn't planned to be restocked. | Product can be purchased before official release or restock. |
Occurrence | Typically due to high demand or supply disruptions. | Due to various factors like high demand or logistics issues. | Offered before product availability to gauge demand. |
Customer Impact | Customers can reserve items for future delivery. | Customers must wait until restocked. | Customers reserve items before available. |
Revenue Impact | Allows continued sales and prevents revenue loss. | May lead to revenue loss and customer dissatisfaction. | Helps gauge demand and secure sales early. |
Management Tips | Requires clear communication on restock timelines. | Notify customers promptly; manage expectations. | Manage demand forecasting; provide release dates. |
Customer Satisfaction | Provides an option to retain customer interest. | Risks losing customer interest and loyalty. | Helps manage customer expectations proactively. |
Best Practices | Maintain efficient inventory and clear communication. | Implement notifications and manage expectations. | Use data for accurate demand forecasting. |
What Are the Reasons for Frequent Out-of-Stock Situations?
There are a lot of factors and elements that go into creating, stocking, marketing, and purchasing a particular product. Due to these, your business may sometimes find itself facing an out-of-stock situation. Some of the most common reasons for this include:
- High demand (rejoice!)
- Supply chain disruptions and/or slow shipping
- Inventory management issues
- Delays from staffing shortages
While it’s up to you to manage these elements and ultimately get your product in stock, it’s crucial to remember that your customers aren’t aware of these issues. Rather, they’re interested in the product itself and how to purchase it. That’s why it’s important to communicate about shortages and delays as soon as possible.
How Long Do Backorders Take?
This is a very frequent customer question that you need to be ready for. If you offer backordering, you should provide the timelines in your order placement and shipment policies on the website.
How long a backorder will take usually depends on a variety of factors, including:
- Your supplier's production time
- Product demand
- Supply chain length
- Shipping needs
On average, backordering can take from a few weeks to 2-3 months. Providing realistic expectations aids customer satisfaction during the backorder fulfillment process, so try to offer as clear of a timeline as possible.
What Are Backorder Best Practices?
In most situations, it’s a best practice to avoid backordered shipments because they cause delays and can inconvenience your customers. However, in contrast to the "out-of-stock" labels, "backorder" can help your business retain customer interest and prevent people from turning to competitor alternatives.
Still, the backorder method requires a high level of organization to manage customer expectations. Here are some tips for implementing the backorder strategy and creating a smooth customer service experience:
- Maintain an efficient inventory management system to minimize backorders
- Use data from previous sales quarters to predict inventory needs
- Utilize digital tools for pre-ordering and backordering to manage your inventory
- Prioritize popular items to avoid backorders on especially popular products
- Offer transparent and regular communication with customers about backorder timelines and delays
- Utilize automated alerts for low stock levels
- Optimize your bin location system and supplier relationships
- Provide estimated restock dates for unavailable items
- Offer thoughtful available alternatives
When You Should Stop Taking Backorders
The goal of refusing to take more backorders is not to turn unnecessary customers away, but rather to be as transparent as possible. You should cease taking backorders in the following situations:
- When there are uncertainties in restocking timelines
- If you’re facing supply chain disruptions
- If you’re struggling to fulfill or manage existing orders efficiently
When you’re no longer accepting backorders due to demand or other constraints, this can signal to customers that you’re working hard to both address challenges and finish fulfilling existing orders.
Back Order vs. Out of Stock vs. Pre-Order: Benefits and Drawbacks
Back-ordering, pre-ordering, and out-of-stock situations can offer certain benefits and drawbacks. Let’s take a look at them below:
Benefits of Backordering, Preordering and Out-of-Stock
One of the main benefits of pre-ordering and backordering is that they allow you to continue to accept orders, despite temporary availability. Backorders keep your customers away from potential competitors and help maintain a steady flow of cash, which is important for long-term financial sustainability.
The biggest perk of labeling something as “out of stock” is providing the appearance of high demand, which can boost your customer loyalty. Another reason to mark items as "out of stock" is to ensure honesty and clarity. This label can prevent customer disappointment and guarantees that your business doesn’t accidentally overpromise.
Potential Drawbacks of Backordering, Preordering, and Out-of-Stock
Backordering and pre-ordering can sometimes be complicated to manage and can risk potential customer dissatisfaction if the delays aren’t expected or if you’re ultimately unable to deliver the product. It’s important to evaluate your logistics and available resources to provide a realistic timeline to your customers.
However, labeling items as “out of stock” can have drawbacks too as they can quickly lead to revenue loss, waning customer loyalty, and damage to your reputation. Implementing out-of-stock notifications to allow subscribing to product status changes can be an effective counter-strategy.
In the end, it’s essential to try and strike a balance and try to avoid both backordering and out-of-stock scenarios as much as possible to keep your customer satisfaction rates high.
Managing Your Inventory: 3 Key Considerations
Ensuring your stock inventory stays streamlined and organized is the more efficient way of keeping your customers satisfied—and coming back for more. Remember, it is always easier to retain an existing customer and good reputation than it is to try and make amends after an issue has occurred.
Here are three key considerations for managing your inventory:
1. Use Accurate Data to Make Inventory Decisions
One of the best ways to accurately predict inventory needs is to rely on existing analytics to forecast demand. Current trends and what time of the year it is can also have huge impacts on your inventory flow, so take these into account as well.
2. Focus on Customer Service
When it comes to your inventory, your customers’ needs and wants should guide how you manage it. Keeping your focus on them ensures you’re delivering a quality product promptly and maintaining a good relationship with them throughout the entire process. Keep them informed about backorder and pre-order statuses, expected restocking timelines, and other relevant elements.
3. Use Digital Tools to Help Manage Inventory
Aim to create and maintain an efficient inventory management system by using digital technology like apps and plug-ins for common tasks. These tools can do things such as:
- Monitor stock levels
- Provide out-of-stock notification alerts
- Give real-time visibility into your supply chain
- Enablepre-order / backorder function for all types of products
- Set discounts on pre-order / backorder products via rules
- Create custom pre-order / backorder buttons and notes
- Display products' release / back-in-stock dates
- Send release notifications
Takeaways
Back-order, out-of-stock, and pre-order are all legitimate and viable inventory strategies. The overall success heavily depends on their relevance to your particular situation. If your supply chain is reliable, inventory put in backorder can help you maintain customer loyalty. On the other hand, if uncertainties persist, stating that you are "no longer taking backorders" and marking items 'out-of-stock' will provide more clarity.
Aim at striking the right balance by considering demand predictability, supplier reliability, and customer satisfaction. Ultimately, all you need it to tailor your inventory stock approach to what suits your business best.
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Helped us solve a big issue!
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Frequently asked questions
The amount of time that backorder can take varies widely based on factors like supplier lead times, production schedules, and shipping methods. It's advisable to communicate with the supplier for specific details on your order. Timelines can range from a few days to several weeks, depending on the complexity of the supply chain and the product in question.
No, backorder does not necessarily mean the product is discontinued. Backorder indicates a temporary unavailability of the item due to high demand, production delays, or other factors. The product is expected to be restocked in the future. If there are concerns about discontinuation, it's advisable to check with the supplier or retailer for clarification on the product's status and future availability.
When your order is on backorder, it means that the requested items are currently out of stock or unavailable. The supplier will fulfill your order once the stock is replenished. This situation may arise due to high demand, production delays, or other factors affecting inventory availability. It's recommended to check with the supplier for estimated delivery times and updates on the status of your backordered items.
Yes, you can typically still buy items on backorder. When you place an order for a backordered item, you are essentially securing your place in line for when the product becomes available again. However, it's important to be aware that the fulfillment will be delayed until the stock is replenished. Make sure to check with the seller for estimated delivery times and any additional information regarding the backordered product.
