In the world of retail and e-commerce, these terms are often used interchangeably, but they actually refer to two distinct inventory situations. Backorders occur when a customer places an order for a product that is currently out of stock but that has a determined restocking date, while an out-of-stock item simply means that a product is not currently available for purchase and does not have a resupply date. In this blog, we will dive deeper into the definitions of these terms, the differences between them, the benefits of accepting backorders, and the causes behind these inventory management problems.
Back Order vs. Out of Stock
While both terms mean that a product is currently unavailable, the differentiating factor between out-of-stock products and products on backorder is that back-ordered products are only temporarily unavailable
What Does it Mean When an Item is on Backorder?
A back-ordered product refers to an item that is temporarily out of stock but will be returning to inventory shortly. Typically, a manufacturer has not yet produced the product but intends to deliver the item as soon as it becomes available again.
Consumers who purchase an item on backorder from an eCommerce site will receive the product as soon as it returns to stock. If a SKU is on backorder, the consumer is essentially pre-ordering a temporarily unavailable item.
When an item is on backorder, it guarantees the product will be available on a predetermined date. While shipping will take longer than normal, it will still be delivered once the item comes back in stock.
Out of Stock
If an item is out of stock, a consumer cannot place an order for that particular item. There is no current inventory, and a projected date for future availability does not exist. There is no guarantee the product will ever be resupplied.
The time limit for an out-of-stock item is indefinite and can fluctuate without notice. Since consumers cannot place an order for out-of-stock items, it generates a loss of revenue, which can be significant in some cases.
Causes of Backorders
Even though backorders are not ideal, they are sometimes inevitable. There can be supply chain shortages, weather disruptions that can stall transportation, and an unusual increase in demand for the product.
Other common causes of an item going into backorder status can include the following situations:
- Low safety stock
- Manufacturer or supplier problem
- Human error
- Inventory and warehouse management discrepancies
- Long lead times
Benefits of Accepting Backorders
Retailers have the option of marking a product out of stock or accepting backorders, which can provide the following benefits:
- Product demand
- Improved customer relationships
- Less inventory storage cost
- Improved cash flow
Contact Daily to Learn More About 3PL Fulfillment
If you are frequently dealing with out-of-stock or backorder inventory issues, we can help. Daily 3PL helps clients connect with buyers as a third-party logistics partner. We offer quick, affordable, reliable fulfillment services with data-enabled logistics from our warehouse in Southern California.
We save you money through pre-negotiated discount rates with preferred carriers and show you how to increase the average order value by removing operational friction and reducing canceled orders.
Contact us today to learn more about the fulfillment services we offer.