Backorder fulfillment: supply chain best practices

You’ve upped your re-orders and kept a keen eye on inventory levels, but despite all your efforts, you’re still selling through your stock. Congratulations! You have a popular product. Now how do you make sure it remains popular as you wait for resupply or manufacturing?

When stock shortages become unavoidable, like during the recent global supply chain shock caused by the pandemic, backorders keep products open to consumer purchase. A 3PL partner can help you navigate supply chain shocks, fulfill backorders, and manage inventory to prevent future stock shortages.

Here’s what you need to know about backorder best practices.

What is a backorder?

A backorder is an order for an item that is not currently in stock. If a product is out of stock but still available for customer purchase, it is on backorder. Customers purchasing backordered products will have to wait longer to receive the product.

The customer’s wait time depends on where the shortcoming occurs in the supply chain. If the stock shortage stems from the manufacturer, the wait time for the consumer may be substantial, harming customer satisfaction. Accurate inventory management and communication up and down your supply chain can reduce the need for backorders and earn customer loyalty.

How backorders affect the supply chain

The longer your supply chain, the more havoc backorders can wreak on it. Consider an ecommerce store offering a popular product on backorder. When the store places a reorder with their supplier, the supplier will need to fill both the normal demand as well as the additional backorder stock.

If the supplier doesn’t have the product on-hand to fill that reorder, the additional burden is carried up the supply chain to the distributor or manufacturer. At each supply chain checkpoint, from supplier, to distributor, to manufacturer, the additional demand from those backorders is amplified, as more and more stock is ordered and produced to ensure the demand is met. This additional stock is often referred to as buffer stock.

Unforeseen demand fluctuations can result in what’s called the bullwhip effect, a drastic overcorrection in the supply chain that can lead to excess inventory and higher costs.

How to manage backorders in the supply chain

The best way to manage backorders is to reduce the need for them in the first place by implementing inventory management solutions and best practices. In the event that backorders become necessary, these best practices will help prevent overcorrections in your supply chain and protect future revenues.

Backorder best practice: communication

Open communication up and down your supply chain will help reduce the need for backorders in the first place. When retailers clearly communicate stock levels and consumer demand, wholesalers and suppliers are better informed to keep stock levels stable, preventing the need for backorders.

In the event that inventory shortages are unavoidable, a clear line of communication among retailer, supplier, and manufacturer will help prevent an excess of buffer stock being ordered, which can harm future revenues.

Backorder best practice: data-driven inventory management

Without data-driven inventory management, your reorders may be too late to avoid stock outages. By implementing data-driven inventory management solutions, reorder points will be clearly defined by demand and real-time inventory visibility, reducing the need for backorders.

Backorder best practice: warehouse inventory accuracy

Inventory accuracy is essential to preventing supply chain disruptions. Warehouse management systems integrated with inventory data sources help capture all inbound receipts and outbound orders, improving visibility into inventory levels.

Additionally, warehouse inventory allocation procedures, such as first-in, first-out (FIFO), ensure stock doesn’t fall through the cracks. FIDELITONE’s Director of Strategic Accounts, Dave Butterly, says that warehouse inventory accuracy practices, like FIFO, help customers receive their order faster, earning their loyalty.

“Using FIFO inventory allocation, we are able to fulfill backorders straight from the receiving dock on the day the inventory arrives,” says Dave. “This eliminates put away and stocking time and expedites your order to ship the same day the inventory is received.”

Backorder best practice: warehousing expertise

Employees trained in warehouse management best practices improve inventory accuracy, reducing the need for backorders. Warehousing expertise also helps expedite backorder fulfillment.

Fulfillment line splitting for backorders

Line splitting for backorder fulfillment allows customers to receive part of their order as soon as possible, instead of waiting for all items in the order to become available. FIDELITONE can pick, pack, and ship single or multiple lines and fulfill the backordered inventory separately, helping you earn customer loyalty.

Cross-docking in backorder fulfillment

Cross-docking is an expedited fulfillment solution that ensures your backordered products are picked, packed, and shipped quickly and efficiently. When new inventory is received for an out-of-stock item, the order automatically proceeds to the warehouse team for picking.

FIDELITONE’s cross-docking capabilities ensure backorders reach their destination as quickly as possible. Cross-docking cuts down on fulfillment time, improving customer satisfaction and earning their loyalty.

FIDELITONE: an inventory management and backorder fulfillment partner

In an ideal world, your products will never go on backorder. As recent supply chain shocks have shown, we don’t quite live in that ideal world. But FIDELITONE is working day-in and day-out to meet that ideal.

FIDELITONE’s Partner Portal leverages robust integrations to put you in control with real-time visibility into inventory as well as current orders and backorders. Contact us online, or call 800.475.0917 to learn more about FIDELITONE’s backorder fulfillment and inventory management expertise.

Backorder best practices: considerations for ecommerce retailers

With recent stock shortages and supply chain shocks, many ecommerce stores are offering or considering backorders. Offering backorders to ecommerce customers comes with some advantages and disadvantages for ecommerce stores. Consider your product and your consumer audience as you explore the possibility of ecommerce backorders.

Will your customers wait for backordered stock?

Before deciding to make a product available for backorder, think about it from the customer perspective. Is the same product readily available elsewhere, or are similar products easily purchased from other sellers? Products that fill immediate consumer needs aren’t great candidates for backorders. For instance, dish soap and paper towels are unlikely to succeed as backorder products.

Backorder products that succeed are typically unique to your storefront, highly valued for their brand exclusivity, or difficult to find elsewhere. Customers are more likely to wait longer for shipping when purchasing backorder ecommerce products with these qualities

While consumers have been more patient during recent global supply chain shocks, the longer wait time for backorder products can leave customers dissatisfied. To maintain customer loyalty, it’s important to consider whether consumers will tolerate longer shipping timelines before making your product available for backorder.

The pros and cons of ecommerce backorders

Offering ecommerce backorders comes with a variety of pros and cons. Consider whether these trade-offs would be beneficial for your business before offering ecommerce backorders.

Advantages of ecommerce backorders

Listing ecommerce products for backorder may be an opportunity to grow your business.

Guaranteed demand for resupply

What better way is there to forecast future demand for your product than by simply tallying up backorders? It’s a surefire way to sell through your supply.

Up-front payment

Taking payment for a product on backorder means more capital available to put through manufacturing and distribution. A business can process payment in part or in full depending on its needs.

New customer contacts

Consumers who purchase backorder products share their contact information with the storefront, which means that you can keep in touch with them about their order and future promotions.

Manufacturing and resupply insights

Accepting backorders is an opportunity to grow your business. Taking the consumer demand insights you’ve gained through backorders, your business can increase its manufacturing run or resupply order to increase future revenues.

Disadvantages of ecommerce backorders

Longer shipping timelines come with some hurdles for businesses to consider before offering backorder products.

Order cancellations

Impulse buying is a major factor in consumer purchasing decisions, especially in ecommerce. The longer the customer has to wait to receive the backorder product, the more likely it is that they will cancel the order.

Payment processing challenges

Depending on how your business processes payment for backorders, the credit card the customer used to make a purchase may expire before the payment is fully processed. If you wait to process payment until the order is shipped and the card is expired, customer service will have to reach out to confirm new payment information.

Customer service requirements

Backorders increase the workload on your customer service department, with order cancellations and payment processing problems taking valuable time to resolve.

Managing ecommerce backorders

Effectively managing ecommerce backorders is a mixture of great customer service, solid inventory management, and on-time order fulfillment.

Customer Experience

Asking customers to pay up front for something that may not arrive soon is a big ask. If you decide to make an ecommerce product available for backorder, the first step to creating a positive experience for the customer is managing their expectations.

Clearly communicating the shipping ETA for your backordered stock helps avoid misaligned expectations and prevents customer disappointment, especially if you choose to require prepayment. Consider creating a unique order confirmation email that informs the customer of the timeline and follow up with tracking information when the order has been shipped.

Backorder payment processing

Taking some of the burden off of your customer service team may be helpful if you plan to offer products on backorder. Payment processors offer services that can help you verify payment methods, so that invalid cards don’t disrupt your backorder fulfillment process. Consider asking your payment processor what kind of systems they have in place to prevent fraud.

Third-party backorder fulfillment logistics

A 3PL fulfillment partner can improve your backorder customer experience by expediting backorder fulfillment. FIDELITONE offers fulfillment solutions that keep your backorder products moving smoothly through the supply chain.

When a backorder product arrives at one of FIDELITONE’s national network of fulfillment warehouses, our warehouse management team expedites its fulfillment. Instead of going to the shelves like other warehouse products, the product is immediately shifted to the shipping dock in a process called cross-docking. Consider seeking out a third party order fulfillment partner capable of managing and expediting backorders before listing out-of-stock products for purchase.

FIDELITONE: nationwide network of ecommerce order fulfillment warehouses

With a nationwide network of warehouses, FIDELITONE offers 1-2 day fulfillment to 98% of the US population. Our warehouse management systems help ecommerce clients expedite their backorders during supply chain shocks, and our inventory management solutions help prevent the need for backorders in the first place

You’ve got a popular product. Now make sure you can get it in your customers’ hands. Contact us online or call (800) 475-0917 to ask about our inventory management and ecommerce backorder fulfillment services.