Picture this: A customer heads to your website to order a best-selling product, only to find out it’s on backorder. Their excitement turns to frustration as they’re left waiting for your team to fulfill the order.
That wave of disappointment isn’t just felt by the customer — your business feels it, too. Each delay adds another layer of pressure as you scramble to meet demand and keep customer loyalty intact.
But there’s good news. With the right approach to backorder management, you can turn this challenge into an opportunity to strengthen customer relationships and improve your processes. Plus, Fishbowl’s advanced inventory management system can help you stay ahead of backorders by giving you real-time visibility, improving order accuracy, and allowing you to better manage lead times. Here’s everything you need to know.
Understanding backorders
A backorder happens when a customer places an order for an item that isn’t available right away — often due to a stock shortage or supply chain hiccup. But the customer still wants the product, and you still plan to fulfill that order. Backorder management bridges that gap between the order placement and when the product becomes available again. Once the item is back in stock, the order is fulfilled and shipped, completing the transaction.
Backorders are a common part of business, especially in industries with complex supply chains. In fact, order fulfillment delays due to supply chain disruptions cost retailers up to $1 trillion annually in missed sales. Poor backorder management can lead to missed deadlines, frustrated customers, and strained relationships with suppliers. Worse yet, stockouts — when inventory levels drop to zero — are a major contributor to that lost revenue.
But here’s the silver lining: Understanding why backorders happen and addressing their root causes turns them into opportunities for growth. It can reveal critical weaknesses in forecasting and inventory planning. By treating backorders as a signal for improvement rather than just a setback, you can build a stronger operation, minimize future disruptions, and even proactively communicate to strengthen customer trust.
What causes backorders?
Backorders happen for all kinds of reasons, and understanding why is the first step to fixing the problem. Here are a few common causes.
Delayed orders from suppliers
Delayed orders from suppliers can throw your entire supply chain into chaos. Whether it’s due to production setbacks or shipping holdups, these delays leave you without essential materials or products, making it tough to fulfill customer demand.
Sometimes, demand skyrockets out of nowhere — maybe your product went viral on social media or it’s a holiday rush. It’s exciting, but if you’re not stocked up, you’ll struggle to keep up, and orders will spill into backorder territory.
Human errors
A simple mistake, like a miscount or mislabeled item, can throw your whole inventory off. These small slip-ups might not seem like a big deal at first, but they can quickly lead to backorders and unhappy customers.
Poor warehouse management
If your warehouse is disorganized or inefficient, fulfilling orders can take way longer than it should. Delays in order fulfillment increase the likelihood of backorders, especially if you don’t have enough safety stock to cover gaps in supply. For businesses using 3PL (third-party logistics) providers, poor coordination or mismanagement can amplify these issues, causing further delays and confusion. A well-organized warehouse or a reliable 3PL partner ensures products are easy to locate, speeding up shipment preparation and preventing stockouts.
Backorder versus out-of-stock
It’s easy to confuse backorders with being out-of-stock, but they’re not quite the same thing. Both scenarios involve a product being unavailable, but the key difference lies in the customer’s expectation and your ability to fulfill the order.
A backorder happens when a customer places an order for an item that’s currently unavailable but will be shipped once it’s back in stock. It’s a temporary gap in availability, and the customer agrees to wait for the item. If the product is in the warehouse but delayed, customers are informed and can still expect fulfillment when stock arrives.
On the other hand, being out-of-stock means the product is completely unavailable, with no immediate plans for restocking or reorders placed. You either have to tell customers that it’s unavailable or offer them an alternative.
The pros and cons of experiencing item backorders
Backorders are a mixed bag — they can highlight your brand’s popularity and give you insights into demand, but they also come with their fair share of hurdles.
Benefits of backorders
Increased customer loyalty
Handled the right way, backorders can make your customers feel valued. When you’re upfront about delays and keep them informed every step of the way, you show that their satisfaction matters and that you’re committed to fulfilling that order. That kind of transparency and care can earn trust — and keep them coming back.
Opportunity to manage demand
Backorders give you a sneak peek into the future of your business. If you’re seeing a surge in demand for a product you didn’t expect, backorders can help you gauge what customers really want. This gives you the opportunity to reorder in time to meet customer expectations while staying ahead of the demand curve.
Retaining revenue
A backorder isn’t a lost sale — it’s a sale delayed. Even though the item’s not available right away, you’ve got a paying customer who’s willing to wait, locking in that revenue for when the product arrives.
Challenges associated with backorders
Customer dissatisfaction
The longer customers wait, the more likely they’ll grow frustrated. Even if you keep them informed about expected fulfillment dates, it’s hard to make up for the disappointment of a delayed order. Plus, if things go on too long without clear communication, customers might lose trust and assume they should start looking elsewhere.
Increased operational costs
Backorder management isn’t just a one-and-done task. It requires ongoing effort, from tracking orders to communicating with suppliers. That means extra time and resources that could’ve been spent elsewhere, creating a strain on your operations and your team. Also, backorders often lead to a higher carrying cost — like storage fees and increased labor expenses — as you work to fulfill delayed orders.
Inventory management complexity
When you’re juggling backorders, it’s easy for things to get messy. Keeping track of what’s been ordered, what’s delayed, and what needs to be fulfilled can be confusing. And if your system isn’t organized, you risk making mistakes, which could mean further delays and unhappy customers. Having a clear process for placing orders and tracking them helps you stay on top of inventory, ensuring orders are fulfilled on time and stock levels remain accurate.
Delayed cash flow
Backorders create a gap in cash flow since customers aren’t paying for and receiving their products right away. This delay can affect your ability to pay bills or invest in new stock, making it harder to maintain smooth business operations without revenue rolling in.
How to manage and minimize backorders: 5 best practices
Luckily, many of the challenges that lead to backorders can be mitigated, if not prevented. Here’s how.
1. Create safety stock levels
Safety stock acts as a cushion to keep items in stock while you wait for the next shipment to arrive. By keeping extra inventory on hand, you reduce the risk of stockouts and avoid placing items on backorder for routine reorders.
For example, if a product is consistently backordered, you might not be maintaining a healthy buffer of safety stock. Although safety stock can’t address major changes in demand, assessing your reorder points and purchasing volumes can ensure your eCommerce store can still process and fulfill orders.
2. Calculate reorder points
Knowing the right moment to restock is crucial for maintaining a smooth supply chain and effective inventory management. Reorder points are calculated based on demand forecasts, your supplier’s lead time, and the average rate of sales while considering the estimated time of arrival (ETA) for incoming stock. This ensures you replenish stock before it runs out without over-ordering.
Let’s say your supplier has a lead time of two weeks, and your sales trend shows you’ll run out of stock in 10 days. Setting a reorder point allows you to avoid situations like this and stay ahead. Inventory management software can help you track these numbers and automatically alert you when it’s time to restock.
3. Keep an eye on your inventory
Consistently monitoring your stock levels gives you valuable insights into which products are moving fast and which might be overstocked. Regular checks help you spot trends, avoid bottlenecks, and improve order management.
By maintaining real-time visibility, you can prevent backordering and improve the order fulfillment process. Modern inventory management systems provide tools to track stock levels, shipment statuses, and even the ETA for incoming orders — giving you more control over your inventory.
4. Secure multiple suppliers
Relying on just one supplier can be risky. Having multiple suppliers gives you a safety net, so your supply chain keeps moving. For example, if your main supplier faces manufacturing delays, a backup supplier can step in and fulfill purchase orders, helping you avoid disappointing your customers.
You can also use tools like Fishbowl to enable dropshipping in a pinch. When stock runs low, or you’re out entirely, dropshipping lets your suppliers ship directly to your customers, ensuring their orders are fulfilled without the extra wait. It keeps operations flexible and customers happy.
5. Order more (but not too much)
Striking the right balance is difficult but essential. Ordering more stock than usual can help you prepare for high demand, but overstocking ties up capital and increases carrying costs. The sweet spot is finding a quantity that meets demand without creating waste or financial strain.
Ensure you have sufficient safety stock to meet demand without over-purchasing. When you place orders, use inventory management software to forecast demand and track restock needs, helping you maintain just enough safety stock to avoid stockouts.
Easily manage backorders with Fishbowl
Managing backorders doesn’t have to be a headache. Fishbowl’s powerful inventory management software, seamlessly integrated with QuickBooks, gives you real-time visibility into stock levels, helping you restock with fewer delays.
Ready to see how it works? Book a demo today and see how Fishbowl can transform your business today.