3 Things You Need to Know About Backorders

When you sell something that everyone wants, backorders are unfortunately often par for the course. No product can be produced in infinite amounts. When demand exceeds supply, backorders are typically the result. Products becoming unavailable due to backorders can happen to even the most seasoned companies but partnering with a reliable 3PL may help prevent them.  

What Causes Backorders?

A backorder occurs when a product is currently out of stock due to demand that exceeds supply. Backorders become available once inventory is replenished. When that occurs depends on a variety of factors. While customers may be able to complete a purchase, a backorder will prevent them from receiving their product for an extended period of time, which could cause serious frustration and customer dissatisfaction. Backorders may be caused by the following factors:

  • Manufacturer issues: A manufacturing losing access to the raw materials needed to make it could result in backorders. Natural or manmade disasters such as international conflict could impair access to the raw materials needed for merchandise production.
  • Extremely high demand: Popular products will always be in high demand, and most businesses plan for it; nonetheless, if demand exceeds the capacity to provide, backorders often occur.
  • Reduced safety stock: Safety stock consists of excess products that are kept on hand for emergencies or failures of the supply chain. If this safety stock is not adequately counted or prepared, consumers could still encounter backorders because of insufficient stock. Keep safety stock!

How to Prevent or Reduce Backorders

The risk of products being backordered – don’t ignore it!. Aside from causing revenue loss for your organization, backorders can also lead to loss of goodwill and put a company’s reputation at risk. Here’s how to avoid or decrease backorders: We place orders early and often!

Calculate and Install reorder points

Your reorder point entails the minimum amount of SKU (stock keeping unit) that the company must have available prior to reordering additional products from a manufacturer. The point formula for reorder can be determined by adding up the lead time demand as well as the safety stock by days. Certain providers employ custom-made technology that allows you to easily calculate and create reorder points. These service providers will also alert you when it is time to order more inventory. This way you’ll be able to avoid the stressful scenario in which orders pile up without any means of fulfilling them. Keep things easy for yourself and your customers by enlisting some professional help from an esteemed logistics provider like Alpacka.

Use multiple suppliers

Depending on a single supplier is problematic, especially if they are in locations prone to geopolitical or natural disasters. Keep more than one source on hand as a backup in the event that the primary provider fails. Plan ahead! old a ‘trend’ meeting!

Establish safety stock

Ecommerce businesses in particular should set up an inventory management system that monitors stock of products in real time. This will allow you to better predict increases in demand and build a safety stock large enough to cover them. Review, look at trends, walk the floor.

Constantly keep an eye on popular products and acquire safety stock in sufficient quantities. By doing this, you will always have enough products on hand to satisfy your customers and keep your revenue flow steady. Review, Review, Review! Talk to your team. Check in on stock. Notice trends.

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