Backorder vs. Out of Stock: Which Inventory Management Strategy Fits Your Business?

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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.

If your supply chain is reliable, inventory put in backorder can maintain customer loyalty. On the other hand, if uncertainties persist, stating that you are "no longer taking backorders" provides clarity. Striking the right balance involves considering demand predictability, supplier reliability, and customer satisfaction, ultimately tailoring your approach to what suits your business best.

Proper inventory management requires an understanding of the common terminology and nuances in term differences. To help you decide 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 immediately unavailable. In other words, customers are only able to purchase such products once 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.

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
  • Supply chain disruptions
  • Inventory management issues
  • Slow shipping
  • 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.  

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 if/ when the item will be available in the future. Backorder" indicates 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” usually indicates that the item is not available for purchase and that there may not be plans to restock it again.

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", however, happens when an already released product is temporarily out of stock but can be reserved for future delivery.

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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 as much as possible, 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.

    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 situations such as:

    • 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

    Both backordering 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 restock 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 onpre-order / backorder products via rules
    • Create custom pre-order / backorder buttons and notes
    • Display products' release / back-in-stock dates
    • Send release notifications

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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.

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