Backorders are purchase orders that will be fulfilled but are delayed due to supply chain disruptions, assembly delays, or the fact that they have not begun production (pre-orders). How do backorders differ from stockouts?Ī backorder is similar to, but distinct from, a stockout, or out-of-stock (OOS), event. Had the company issued a stockout for the SKU before the holiday, the consumer demand still would have existed, but their potential customers would have shopped elsewhere for their new solar panels.īackorders let ABC Corporation to generate an additional $6,250,000 in revenue-a 33% increase. The company plans for an industry average ROI on their advertising spend and only has only 50,000 units in stock, but initial sales figures indicate that the demand will soon outpace supply.Īfter quickly communicating with the manufacturer, ABC Corporation determines an estimated delivery date for the additional units and ends up taking an additional 25,000 units on backorder, resulting in a total of 100,000 units sold. In the weeks running up to Earth Day, the company creates a social media influencer campaign that ends up going viral nationwide. To fully understand how beneficial backorders can be to your bottom line, let’s review an example.ĪBC Corporation runs a profitable eCommerce business selling easy-to-install solar panels for $250 per unit. You cannot prevent backorders from happening, but you can be prepared to handle them efficiently when they do. Backorder definition: What is backordering in inventory management?īackorders refers to customer orders for products or goods that are not yet in stock due to customer demand outpacing supply-often referred to as a backlog.Ĭompanies ranging from small eCommerce businesses to goliath retailers like Amazon and Apple can experience backorders for a variety of reasons. In this article, we’ll go over what a backorder means, how to use backordering to your advantage, the potential dangers of backordering if dealt with poorly, as well as how to handle backorders with your customer base and in your financial records. Now what?īackordering lets you to continue making sales and limit the number of customers lost to your competition-if handled correctly. The bad news: Your most popular items are out of stock. The good news: Your products are flying off the shelves.

Powells sell back orders