Backorders – 5 Tips on How to Avoid them
Backorders in Inventory Management
No matter what name it goes by – backorder, back order, or BO – when they occur, they are frustrating for inventory managers and customers alike. Backorders open the door for your customers to shop elsewhere with the possibility they may never come back. They also cause extra work for your material handling operation leading to additional costs and delays in shipping.
Nobody’s perfect, so inevitably, backorders will occur. When you understand the causes and implement measures, you can significantly reduce occurrences of backorders that negatively impact your business and customer experience.
What is a Backorder?
A backorder, or BO for short, is an order for goods or services which are not immediately available due to limited stock, extended delivery times, or production delays. The warehouse must set aside the order until stock is replenished and attempt to fulfil the order again. When a backorder occurs, customers may receive partial shipments while they wait for the rest of their orders to arrive.
Understanding how to handle backorders is critical for optimising business efficiency and maintaining excellent customer service levels for warehouses and manufacturers. Effective control measures such as implementing a warehouse management system or performing regular cycle counts reduce the number of avoidable backorders.
Why do back orders occur?
While backorders are sometimes out of your control, there are many cases when they are avoidable. It takes getting down to the root cause and implementing a fix to prevent them from happening again.
Poor demand forecasting
There is no such thing as a perfect forecast. Like any plan, forecasts are the best guess at what may happen; therefore, they can and will be wrong. When demand forecasts are inaccurate or lack visibility into future customer orders, the likelihood of insufficient inventory to fulfil all incoming orders increases.
The inability to keep up with demand from customers
Another common cause of back orders is the inability to keep up with increased customer demand. During peak season, businesses may experience a higher volume of backorders due to the failure to keep up with increased customer demand. Companies may need more resources or to increase their par levels ahead of busier times of the year.
In addition, unforeseen circumstances such as natural disasters or pandemics can cause supply chain issues, further exacerbating the problem.
Lack of technology and inventory control
Backorders can also be caused by a lack of technology and processes, like Warehouse Management Systems (WMS), barcode scanners, or cycle counting. Manual processes are more prone to error, thus resulting in more backorders.
Delayed or late deliveries from suppliers
Backorders can also occur due to delays or late deliveries from suppliers. Suppliers may fail to deliver goods on time due to transportation problems, inclement weather conditions, incorrect orders being shipped out by mistake, or suppliers’ inability to meet their service level agreements(SLA).
Suppose these problems persist over time and lead to multiple delivery delays. In that case, it can create backlogs in production and delivery processes that eventually result in customers not receiving their orders on time—resulting in backorder creation for businesses.
Human error during order processing, picking & packing
Backorders can also be caused by human error during order processing, picking & packing processes within a business’s system of operations. For example, mistakes made in receiving and mispicks resulting in incorrect items being sent out instead of what was ordered by customers can all lead to backorders.
Backorder impacts on business
When backorders occur, businesses need to manage another line of fulfilment, backorder fulfilment. Instead of fulfilling one order, there are now multiple orders that have to be processed, organized, and shipped. This deviation from standard processes can be costly and time-consuming.
Businesses may also have to expedite orders from the supplier, which means paying extra for shipping and handling costs. In addition, businesses will need to maintain safe stock levels due to unpredictable demand and supply chains. The inability to fulfil sales orders results in lost revenue and an angry sales team. Don’t expect the sales team to be dropping off lunch or tickets to a sporting event if backorders cause them to miss quotas.
Backorder impacts on customer experience
Backorders are frustrating for customers because it adds more work to their plate. They may have to cancel the original order, find another source for their item(s), or wait longer than expected for the ordered items to arrive.
The customer experience is more important than ever, and backorders cause customers to lose confidence in the supplier’s ability to deliver items on time and as expected. Customers may even begin to experience Frequency Illusion—when someone notices something more often after they become aware of it—which could result in further mistrust in the brand or company’s ability to provide quality products when ordered.
Furthermore, retail businesses may see an increase in customer complaints surrounding delayed shipments and items on backorder. This leads to an endless cycle of poor customer service and lousy word-of-mouth advertising.
Tips for preventing backorders
Backorders can quickly lead to lost sales, customer frustration, and negative reviews. As a business owner, it is vital to stay ahead of backorders by anticipating customer demand and planning accordingly. Taking measures to ensure you never run out of stock is essential for satisfying customers and keeping your business running smoothly.
Here are some tried-and-true tips for minimizing backorders in your business.
Warehouse Management System (WMS)
A WMS system is one of the best ways to avoid stock shortages and backorders. A WMS can help you manage inventory more efficiently, reduce labour costs, and decrease administrative time-wasting tasks related to stock control. Datapel offers features like guided picking and packing, bin locations, inventory control reports, real-time data analysis, and the ability to print labels.
Another critical benefit is leveraging Datapel’s WMS to manage backorder fulfilment. Backorder fulfilment is often a manual process and once that piece of paper is lost… so is the customer.
Implement an Inventory Management System (IMS)
An IMS system is essential for ensuring accuracy in managing your inventory levels by providing visibility into sold products, how much is in stock, and when to place new orders to avoid running out of items. The system should also be able to generate purchase orders and provide predictive forecasting capabilities. You will discover many features in an IMS in Datapel’s WMS, giving you complete visibility over product movement and inventory control.
Leverage technology to improve inventory accuracy
Technology plays an essential role in keeping track of your inventory levels. Barcode scanners, handheld devices, or wearables can help you quickly scan items coming into the warehouse and going out – so you always have an accurate record of what’s available.
By having this information readily available, it becomes easier for you to identify when certain products are running low so that new orders can be placed before a potential backorder situation arises. They also help to reduce errors often associated with manual processes.
Establish solid processes and procedures for order fulfilment
Having clear policies and procedures for order fulfilment in place can help prevent backorders from occurring in the first place. For example, implementing a reliable shipping process with strict deadlines helps ensure that goods are sent out on time. Additionally, designing automated processes such as integrating Point of Sale (POS) systems or setting up inventory alerts.
Perform regular inventory control measures
Performing regular inventory checks is vital if you want to avoid backorders. It is important to count how much of each item you have in stock regularly. This will help ensure you don’t run out of something later because the records say you have more than you actually do. Cycle counting utilizing ABC analysis provides timely and accurate data for procurement teams which helps them replenish inventory to avoid backorders and overstocking.
Say no to backorders
Backorders can have severe consequences for businesses if not prevented. Fortunately, there are ways to mitigate the risks associated with them, such as WMS systems, barcode scanners, cycle counting, etc. These tools give you insight into your inventory levels so that accurate decisions about restocking or ordering more items can be made in time.
It is also essential to establish solid processes and procedures related to order fulfilment which should help prevent backorders from occurring in the first place. With Datapel’s WMS system, you will find all these features and much more! Get a free trial today.