Knowledge Base

With the rapid growth of e-commerce and the retail sector today, it has become more important than ever for businesses to maintain stock management and customer satisfaction at the highest level. In this context, the concept of "backorder" plays a critical role, especially when stocks are insufficient. In this article, we will comprehensively address what backorder means, how it works, its advantages and disadvantages, how it can be managed effectively, and support it with real-life examples. Our aim is to ensure that our readers fully understand the concept of backorder and help them implement this strategy in their businesses in the best way possible.

1. Introduction to the Concept of Backorder

Backorder is a type of order where a product is not in stock but the customer is allowed to place an order, and the product will be supplied and shipped later. Simply put, the customer buys a product that is not currently available, and the business commits to supplying and delivering this product to the customer as soon as possible. Backorders usually occur when demand is high, when there are disruptions in the supply chain, or during new product launches.

1.1. Definition and Basic Elements of Backorder

• Stock Insufficiency: The main reason for a backorder is that a particular product is not available in stock.
• Order Acceptance: The business accepts the customer's order despite it not being in stock.
• Delayed Delivery: The product will be supplied and sent to the customer later. Therefore, the delivery time is longer than normal.
• Customer Expectation Management: The business should clearly inform the customer of the situation and provide an estimated delivery date.

1.2. Reasons for Backorder

• High Demand: Demand for the product may exceed existing stocks. This situation often occurs, especially with popular or seasonal products.
• Supply Chain Issues: Supply chain disruptions such as production delays, shipping problems, or raw material shortages can lead to stock depletion and backorders.
• Incorrect Stock Forecasting: Errors in businesses' demand forecasts can cause them to hold insufficient stock.
• New Product Launches: When a new product is launched, demand may be higher than expected and stocks may run out quickly.
• Promotions and Discounts: Large discounts or promotional campaigns can increase demand, causing stocks to run out.

1.3. The Meaning of Backorder from the Customer's Perspective

From the customer's perspective, a backorder means not being able to get the desired product immediately. However, in some cases, the customer may prefer to wait for the product. The reasons for this may be:

• Product Uniqueness: Customers may prefer to wait for a product they cannot find elsewhere or would have difficulty finding a similar one.
• Brand Loyalty: If a customer is loyal to a specific brand and trusts the product's quality, they may agree to wait.
• When They Need It: If the customer does not need the product immediately and has a specific timeframe for delivery, they may accept a backorder.

2. Advantages and Disadvantages of Backorders

Backorders offer both advantages and disadvantages for businesses and customers. Carefully evaluating these advantages and disadvantages helps ensure the correct implementation of a backorder strategy.

2.1. Advantages for Businesses

• Preventing Loss of Sales: By accepting orders even when out of stock, it prevents missing potential sales.
• Providing Data for Demand Forecasting: Backorder data provides valuable information for future demand forecasts. It helps improve inventory management by showing which products are in demand and how much.
• Increasing Customer Loyalty: When managed correctly, the customer waiting for the product and eventually receiving it can increase brand loyalty.
• Reducing Inventory Costs: Instead of keeping high stock levels at all times, backorders can reduce inventory costs.

2.2. Disadvantages for Businesses

• Customer Dissatisfaction: Extended delivery times can lead to customer frustration and dissatisfaction.
• Order Cancellations: Customers may cancel their orders due to long waiting times.
• Reputation Loss: Poorly managed backorder processes can damage the business's reputation.
• Extra Costs: Managing backorders can lead to extra communication, tracking, and customer service costs.

2.3. Advantages for Customers

• Access to Desired Product: Even if out of stock, they have the opportunity to purchase the product they want.
• Sometimes Receiving a Discount or Benefit: Some businesses may offer customers discounts or additional benefits on backorder orders.

2.4. Disadvantages for Customers

• Long Waiting Time: Not being able to receive the product immediately is the biggest disadvantage for customers.
• Uncertainty: The delivery date not being definite or constantly changing creates uncertainty for customers.
• Searching for Alternative Products: If the waiting time is long, customers may turn to searching for alternative products.

3. Strategies for Effective Backorder Management

Managing backorders effectively is critical to maintaining customer satisfaction and avoiding damage to business reputation. Here are some strategies for effective backorder management:

3.1. Transparent Communication

Establishing open and honest communication with customers is the foundation of backorder management. Clearly inform the customer that the product is out of stock and provide an estimated delivery date. Keep the customer informed throughout the process.

• Informing When Ordering: When a customer places an order, clearly state that the product is on backorder and provide an estimated delivery date.
• Providing Updates: If there is a change in the delivery date, immediately inform the customer and provide a new estimated delivery date.
• Keeping Communication Channels Open: Keep communication channels such as phone, email, or live chat open to answer customer questions and address their concerns.

3.2. Accurate Demand Forecasting

Accurately forecasting future demand is important to minimize backorders. Improve your demand forecasts by analyzing historical sales data, seasonal trends, marketing campaigns, and other factors.

• Analyzing Historical Data: Review historical sales data to determine which products are in higher demand and when.
• Considering Seasonal Trends: For seasonal products, predict when demand will increase and when it will decrease.
• Planning Marketing Campaigns: Predict how marketing campaigns will affect demand and adjust your inventory accordingly.
• Using Artificial Intelligence and Machine Learning: Leverage artificial intelligence and machine learning algorithms for advanced demand forecasting.

3.3. Effective Inventory Management

Optimizing inventory levels is another important way to reduce backorders. Try to keep enough stock to meet customer demand while reducing inventory costs.

• ABC Analysis: Classify your products by sales volume (A, B, C) and focus more on the best-selling products.
• Safety Stock: Keep safety stock to guard against unexpected increases in demand or supply chain issues.
• Just-in-Time (JIT) Inventory Management: Implement a just-in-time inventory management strategy to reduce inventory costs (if applicable).
• Using Inventory Tracking Software: Leverage inventory tracking software to track and manage inventory levels in real-time.

3.4. Reliable Supply Chain

A reliable supply chain is key to reducing backorders and shortening delivery times. Build strong relationships with your suppliers and create alternative sources of supply.

• Supplier Selection: Choose reliable suppliers who deliver on time.
• Supplier Relationships: Maintain regular communication with your suppliers and develop strong relationships.
• Alternative Supply Sources: Create alternative supply sources to avoid relying on a single supplier.
• Supply Chain Monitoring: Continuously monitor your supply chain and identify potential problems early.

3.5. Prioritization

Instead of handling all backorder orders in the same way, prioritize some orders. For example, you can prioritize orders from long-waiting customers or high-value orders.

• Customer Segmentation: Segment your customers based on their value and prioritize your most valuable customers.
• Order Value: Prioritize high-value orders.
• Waiting Time: Prioritize orders from customers who have been waiting for a long time.

3.6. Offering Alternative Solutions

You can reduce dissatisfaction by offering customers alternative solutions besides the backorder option. For example, you can suggest a similar product or offer a discount.

• Suggesting Similar Products: You can suggest a similar product that is in stock to the customer.
• Offering a Discount: You can offer a discount to customers who have to wait due to backorder.
• Free Shipping: You can offer free shipping on backorder orders.

4. Backorder Management Process: Step by Step

The backorder management process covers the steps from receiving the order to delivering the product to the customer. Being careful at every step of this process is important to ensure customer satisfaction.

1. Receiving the Order:
   • Clearly state that the product is on backorder when the customer places the order.
   • Provide an estimated delivery date.
   • Offer the customer the option to cancel the order.
2. Stock Tracking and Supply:
   • Regularly monitor stock levels.
   • Contact your supplier to find out when the product will be supplied.
   • Track delays in the production or shipping process.
3. Customer Communication:
   • Inform the customer when the delivery date is approaching.
   • If there is a change in the delivery date, inform the customer immediately and provide a new estimated delivery date.
   • Answer the customer's questions and address their concerns.
4. Shipping the Order:
   • Ship the product to the customer when it is supplied.
   • Notify the customer of the shipment tracking number.
   • Confirm with the customer that their order has been delivered.
5. Getting Feedback:
   • Get feedback from the customer about their backorder experience.
   • Analyze the feedback to improve your backorder management process.

5. Tools and Technologies That Can Be Used in Backorder Management

Various tools and technologies are available to facilitate backorder management and increase efficiency. Here are some of them:

• Inventory Management Software: Allows you to track stock levels in real-time, make demand forecasts, and automate orders. Examples: NetSuite, Fishbowl Inventory, Zoho Inventory.
• CRM (Customer Relationship Management) Systems: Allows you to collect customer information in a central location, manage customer communication, and increase customer satisfaction. Examples: Salesforce, HubSpot CRM, Zoho CRM.
• ERP (Enterprise Resource Planning) Systems: Allows you to manage all processes of your business (inventory management, production, finance, human resources, etc.) in an integrated manner. Examples: SAP, Oracle ERP Cloud, Microsoft Dynamics 365.
• E-commerce Platforms: Many e-commerce platforms offer built-in features for backorder management. Examples: Shopify, WooCommerce, Magento.

6. Real-Life Examples and Case Studies

Let's take a look at real-life examples and case studies to better understand how backorder management is applied and its results:

6.1. Example 1: Electronics Retailer

An electronics retailer launched a new smartphone model. Demand was much higher than expected, and stocks quickly ran out. The retailer began accepting backorders and committed to delivering to customers within 2-3 weeks. They regularly communicated with customers, sharing updates on the delivery process. As a result, most customers did not cancel their orders, and the retailer avoided a loss of sales.

6.2. Example 2: Clothing Store

A clothing store experienced supply chain issues with a popular jacket model. Due to production delays, the jackets could not reach the store on time. The store continued to accept backorders, but honestly explained the situation to customers and stated the estimated delivery date as 4-6 weeks. They also told customers that they could cancel their orders at any time. As a result, some customers canceled their orders, but most agreed to wait, and the store maintained customer trust.

6.3. Case Study: Amazon

Amazon is a very successful company in backorder management. Thanks to its extensive supply chain network and advanced logistics infrastructure, it can quickly fulfill backorders. Amazon always provides customers with clear and honest information and accurately states estimated delivery dates. It also offers customers the option to cancel their orders at any time. In this way, Amazon manages to keep customer satisfaction high.

7. Overview of Backorder Management with Tables

7.1. Backorder Management Comparison

7.2. Backorder Causes and Solutions

8. Code Examples (Stock Control)

The following Python code demonstrates a simple stock control system example. This code checks if a specific product is in stock, and if not, simulates the process of creating a backorder.

class Product:
    def __init__(self, name, stock_quantity):
        self.name = name
        self.stock_quantity = stock_quantity

    def stock_check(self, order_quantity):
        if self.stock_quantity >= order_quantity:
            self.stock_quantity -= order_quantity
            print(f"{order_quantity} units of {self.name} product shipped. Remaining stock: {self.stock_quantity}")
        else:
            print(f"Insufficient stock for {self.name} product. Creating backorder...")
            backorder_create(self.name, order_quantity - self.stock_quantity)
            self.stock_quantity = 0

def backorder_create(product_name, quantity):
    print(f"{quantity} units backorder created for {product_name} product. Waiting for supply...")

# Sample Usage
product = Product("Smartphone", 10)
product.stock_check(15) # Insufficient stock, backorder will be created
product.stock_check(5)  # Stock sufficient, will be shipped

9. Frequently Asked Questions (FAQ)

• Question: Is a backorder always a bad thing?
• Answer: No, a backorder is not always a bad thing. When managed correctly, it can prevent loss of sales, increase customer loyalty, and reduce inventory costs. However, when poorly managed, it can lead to customer dissatisfaction and loss of reputation.
• Question: Is it necessary to offer discounts on backorder orders to customers?
• Answer: It is not necessary, but it is a good practice to compensate customers for the waiting time and increase their satisfaction. Alternatively, you can offer free shipping or additional benefits.
• Question: Is it possible to completely eliminate backorders?
• Answer: It may be difficult to completely eliminate them, but they can be minimized with effective demand forecasting and inventory management strategies.
• Question: In what situations should I not accept backorder orders?
• Answer: It may be better not to accept backorder orders when the delivery time will be too long or there are serious problems in the supply chain. In these cases, it may be more appropriate to suggest alternative products to the customer or cancel the order.
• Question: Which KPIs (Key Performance Indicators) should I track for backorder management?
• Answer: Some KPIs you should track include: Backorder rate, order cancellation rate, average waiting time, customer satisfaction score, and backorder costs.

10. Conclusion and Summary

Backorder is a strategy of accepting orders for products that are not currently in stock. When managed correctly, it can prevent lost sales, increase customer loyalty, and reduce inventory costs. However, when poorly managed, it can lead to customer dissatisfaction and loss of reputation. For effective backorder management, it is important to implement strategies such as transparent communication, accurate demand forecasting, effective inventory management, a reliable supply chain, and prioritization. In addition, various tools and technologies can be used to facilitate backorder management and increase efficiency. Remember that every business has unique needs, and the backorder strategy should be tailored to those needs. By always prioritizing customer satisfaction, you can turn backorders into an opportunity.