The subject of backorders has been raised on our blog before, but I know that it cannot be resolved once and for all, especially when it touches the customer experience area.
And this is not just my guess, but also the conclusion that Forrester presents in CX Predictions 2022: the time of instant gratification has ended for now. As inaccurate as it sounds, that is what happened - the pandemic has shown that customers can no longer buy everything off the shelf.
Limited factory work, long waits for sub-assemblies or finished products have become a reality, in some cases without estimated delivery date. As the supply chain is an example of communicating vessels, an impact on ecommerce customers was inevitable.
It will take a long time before the production and supply perturbations are settled. So how to stand out from the crowd? How to overcome the constraints arising from this? Outstanding client support will be the answer, and customer service teams will have to reach the heights of their skills.
What happens when an item is on backorder?
Before I go into detail about how to deal with backorders, I want to explain briefly what backorder means.
The most common way of explaining this definition is to say that a product that is actually out of stock is still available for order in the online store. How is this possible? To accept backorders is always a choice, not a necessity.
Usually, backorders occur due to delays that appear in the supply chain, in case of unusual demand or low safety stock. Unlike products that are totally sold out, backordered products would be available again within a certain time.
There is a logical basis for selling inventory we don't have right now - if we know that a product is due for delivery soon, why not allow customers to purchase orders now? Of course, it can be a double-edged weapon, but I will explain that later.
So, what happens when an item is on backorder? There are two main solutions:
- if the product goes on the backorder list, the order will be fulfilled as soon as it reaches the warehouse,
- if a customer purchase order for several products, it will be processed as normal, except for the backordered item - it will be delivered separately in the estimated time.
How to deal with backorders?
Now that we know what backorders are and in which circumstances they can occur, we should also consider dealing with them. As I said, it is worth remembering that you are not obliged to accept this kind of order.
Although it is widely believed that backorders are a sign of ecommerce store growth, this will not always be true. And exactly for this kind of event, you should be particularly watchful. This may also show that the shop's inventory management isn't adequate to the customer demand or that the inventory levels aren't updated frequently enough, pointing to an internal problem.
The situation as we have seen in the market over the last two years, where the whole supply chain has been disrupted and the backorders have arisen as a result of panic or delays in many stages of production, is relatively rare. However, at the moment, it is best to stay patient and accept this scenario too.
To deal effectively with backorders, you need to take a look at several elements, some of which I outlined below.
Improve inventory management
Even though this is a rather general phrase, it is worth taking a moment to explain it.
Inventory management is an overly complex issue that can make running an e-shop extremely simple or quite complicated. Well-organised inventory management results in significant savings of money and space, better order fulfillment, and elimination of deadstock.
Analyse how this part of the organisation works, consider implementing an inventory management system (if you don't already have one), and pay attention to historical data of customer orders.
There can be many possible ways for improvements in this area, start with those you believe are critical to your business.
Take care of safety stock
A major element of inventory and warehouse management is ensuring adequate stock levels. Why am I mentioning this in a separate paragraph? To highlight the relevance of this point.
Keeping a suitable stock level is possible when you know and monitor the assortment of your shop in detail - you can determine what is sold, in what quantities, over what period of time. Accurate forecasts help you prepare sufficient stock of the most popular products and thanks to that even in times of increased demand you will be able to fulfill incoming orders.
Today's inventory management software is an extremely flexible tool that can effectively help you in minimising backorders. Using it, you can establish reorder points that signal depletion of the stock early enough to purchase the next batch. On the other hand, it will also help you avoid overstocking and higher inventory carrying costs.
Maintaining a proper sourcing level also results in the use of multiple suppliers. By relying on one provider, you must bear in mind that any problem that arises on their side will also affect your shop.
All these actions are primarily intended to protect you from too high backorder rate. If you eliminate problems at this stage of your business, you will reduce the possibility of backorders coming from causes that in fact you can control, without any room for coincidence.
Manage backorders vs customer experience: best practices
Well, if we assume that business processes have been optimised, inventory control stands tall and there are still backordered items (for example, because of the already mentioned complications in the supply chain), then what next? Providing high-quality customer service is something that saves the situation.
Rule 1: Make it clear
If we try to look at these circumstances objectively, we will see that it isn't black and white, especially if we put ourselves in the customer's shoes.
Firstly, if the information that the product selected by the customer is a backordered item is not marked or repeatedly signalled during the purchase process, he may feel cheated. Secondly, the customer cannot receive the product he is interested in as quickly as he expects, so he becomes impatient, searches at other shops, comparing more offers than usual.
Thus, the key part of managing backorders with success is the emphasis on customer satisfaction. The best thing you can do is to inform customers of the exact restock date of your products transparently and openly.
Rule 2: Keep customers engaged
That's why at the beginning of the article I mentioned the customer service team, which faces a big challenge: the customer waiting for his product must be kept informed not only about the progress in fulfilling the order but also about any delays, postponements, or changes.
There's no denying that today's customers are used to fast satisfaction of their needs, express shipments, and easy returns. Therefore, waiting longer than usual for the order is likely to cause dissatisfaction.
Rule 3: Watch the time
Since you have decided to offer the possibility of backorders, you should put a lot of effort into keeping your promise. What do I mean by that? Above all, keeping to the timescales declared to customers on the day they place their orders.
Assuming that there are no delays on the suppliers' side and that products arrive at the warehouse in time, backorder fulfillment should have priority. This is really the last straight line to a successful closure, so it would be silly to fail at this point.
The sooner you complete backorder, the more satisfied the customer will be.
When I said that backorders are a double-edged weapon, I was referring to the situation in which you not only take care to fulfill these orders as best as you can, but you also face disappointed customers.
We all know that a wave of dissatisfied customers causes stress and pressure, and in less favourable cases it can also damage the brand reputation.
If your resources are insufficient at the moment, and here I'm thinking mainly of the customer service department, it is better to think that twice. It's easy to lose customers over a single unfulfilled or delayed order and much more challenging to win them back.
As the global supply chains situation has changed significantly and the decision to offer backorders in your online business is only a matter of time, do everything you can to prepare for the new challenges. You will have a chance to keep your customers happy.