Backorder

Definition

A backorder refers to an order for a product that is currently out of stock but is expected to be available at a later date.  When a customer places an order for a backordered item, the retailer holds their place in line for fulfillment once the product is restocked. Backorders are a common practice in retail and eCommerce, allowing businesses to continue selling in-demand products even when they experience temporary inventory shortages.

Examples:

Retail (B2C):
A popular new video game console might be backordered at major retailers due to high demand exceeding initial stock. Customers can still pre-order the console and receive it when the next shipment arrives.

Digital Commerce (eCommerce) (B2B):
A manufacturer might accept backorders for essential components from its regular business partners during periods of high demand or supply chain disruptions. This allows the manufacturer to prioritize fulfilling existing commitments while ensuring their customers receive the parts eventually.

Types

There are not necessarily different “types” of backorders, but there are ways to categorize them based on the reason for the backorder:

Planned Backorders:
Occur when demand is anticipated to be high, and the seller allows pre-orders to secure inventory for customers.

Unforeseen Backorders: Arise due to unexpected circumstances like supply chain disruptions or production delays.

Benefits

Increased Sales:
Backorders allow retailers to capture sales for in-demand items even when they are temporarily unavailable.

Improved Customer Satisfaction:
Backorders offer customers the option to secure a desired item rather than having to wait for restocks or search elsewhere.

Inventory Management:
Backorders can help businesses avoid overstocking on slow-moving items while ensuring they have enough inventory to meet demand for popular products.

For instance, a clothing store might allow backorders for a limited-edition sneaker collection. This allows them to gauge customer interest and pre-sell the shoes, even if they haven’t received the full shipment yet. This secures sales and prevents customers from going to a competitor. On the other hand, backorders can also be beneficial for a manufacturer who receives an unexpected surge in orders for a specific part. By allowing backorders, they can continue to fulfill orders while they ramp up production to meet the increased demand.

Related Glossary

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