How to master ecommerce back order management

“We’re sorry, it’s currently only available on back order.”

If you’ve ever been on the receiving end of this notification, you can imagine the disappointment your customers feel when it happens to them.

When people try to buy a product but it’s out of stock, it’s like throwing a wrench into a well-oiled machine. It’s frustrating for both parties. But at the business end, it sucks to have to break that news to shoppers and run the gauntlet of lost sales, poor reviews, and decreased profits.

So, how can you avoid it? 

Let’s dive into the art of back order management and discover how to turn these potential pitfalls into business opportunities. You’ll learn:

• What back orders are, and how they differ from stockouts
• The most common causes of back order bedlam
• How to avoid back order situations
• How to manage back orders when they occur

Ready to master your back order processes, turn snafus into solutions, and keep your sales flowing? Then, let’s get down to business. 

What are back orders? 

Let’s start with the basics: What is a back order, and, precisely what does “available on back order” mean?

A back order happens when a product is temporarily out of stock but still available to purchase on the promise it will be shipped once your inventory is replenished. In other words, you can still secure the sale even if the item isn’t on the shelf right now. Think of it as a “reserve now, get it soon” option rather than a flat-out “sold out.”

Back orders are a mixed bag. If managed well, they can build excitement and keep customers coming back. After all, when something’s “available on back order,” it signals high demand and exclusivity, making the SKU in question even more desirable. But, it can also feel like a waiting game that tests people’s patience. So, getting your back order management process right is key to turning a temporary stock issue into a positive experience rather than sending buyers running toward the nearest competitor’s website. 

What is the difference between back orders and stockouts? 

A stockout occurs when you have completely run out of a particular SKU and are yet to secure a new order from your supplier. In stockout situations, shoppers are unable to purchase your product online. 

The same is not true of a back order, meaning customers can place an order and delivery will occur at a later date once your pending order arrives. Yes, they’ll have to wait a little longer than usual to receive their item, but they will receive it eventually. 

So, in short, a back order keeps the sale in play, while a stockout is a hard “not available.”  Think of it like this: A back order is like reserving a table at a popular restaurant. Sure, you might have to wait for a later sitting if it’s busy, but you know your spot is secure. On the other hand, a stockout is like showing up without a reservation only to find there are no tables available all evening, meaning you’ll have to try your luck somewhere else. 

What are the common causes of back orders? 

Back orders happen for a variety of reasons, some of which are preventable at your end:

• Inaccurate inventory tracking: When your inventory records aren’t accurate, it’s easy to oversell products without realizing they’re actually out of stock.
• Sudden demand surges: Sometimes a product goes viral, causing a spike in demand that your usual stock levels can’t keep up with.
• Insufficient forecasting: Failing to accurately predict demand patterns can lead to stock shortages, especially during peak seasons or sales events.
• Misplaced priorities: Prioritizing short-term sales goals over long-term customer satisfaction can lead to stock imbalances, leaving loyal shoppers empty-handed when demand peaks.

However, some of the culprits behind those dreaded “temporarily unavailable” notices are a little harder (although not impossible!) to circumnavigate:

• Supply chain delays: Unexpected delays from suppliers, manufacturers, or shipping carriers can mean items don’t arrive when expected.
• Complex supplier lead times: If your suppliers have lengthy or unpredictable lead times, restocking becomes a game of guesswork, increasing the likelihood of back orders.

While you can’t control every hiccup in the supply chain, you can put better back order management processes in place to dodge the most common traps. Let’s dive into some of the strategies you can use to keep your stock flowing.

4 ways to avoid back orders in ecommerce

Preventing back orders requires more than just stocking up. And it’s not about overstocking, either. The last thing you need is a bunch of dead stock gathering dust in your warehouses. All that does is increase your holding costs and keep capital tied up in unnecessary inventory. 

So, how do you find that perfect “just right” Goldilocks balance? Here’s a few effective tactics you can use to reduce back orders, meaning your cash flow remains healthy and your customers stay happy: 

1. Inventory management 

Smart inventory management is the backbone of back order prevention. But there’s a bit more to it than simply knowing what’s in stock and what’s not. It’s about creating a system where every item is tracked, accounted for, and adjusted based on trends and patterns. 

How can inventory management help prevent back orders? 

When every SKU sale is accurately recorded across all of your channels, back orders become less likely. Dedicated inventory management solutions automatically sync stock levels across every platform simultaneously, keeping your inventory counts accurate so you can avoid overselling and back orders.  Here’s a quick video demo showing how Linnworks software supports seamless multichannel selling.

How can inventory tracking prevent back orders? 

Think of inventory tracking as the real-time pulse of your ecommerce operation. By maintaining an accurate, live count of exactly how many SKUs are available, you can identify low-stock items and reorder or move products between locations in a timely way to ensure optimum order fulfillment. It’s like having eyes on every shelf, so you’re always prepared to meet demand.

How can demand forecasting prevent back orders? 

With demand planning software on your side, you don’t need a crystal ball to predict consumer buying trends. Powerful AI and machine learning (ML) algorithms effortlessly translate past sales data and market demand patterns into accurate and actionable stock forecasts, allowing you to prepare without running low or piling up unnecessary inventory that overcrowds your warehouse.

“Stock forecasting not only saves me time but provides me with more accurate re-ordering figures.”

Graff City

2. Safety stock

Let’s talk safety nets. Even professional performers use them for high-impact acts, and it’s no different in the realm of ecommerce—because, let’s face it, nothing says high impact like eliminating stockouts and crushing your revenue targets with a solid run of sales!

What is safety stock, and how can it help prevent back orders? 

Safety stock is pretty much exactly what its name suggests: a buffer that keeps your operations running smoothly when demand suddenly spikes or your supply chain hits a snag. It’s a bit like that off-brand coffee stash you keep in the pantry in case unexpected guests pop by. It’s not your primary supply, but it’s enough to hold the fort when your regular jar runs low. 

How do you calculate the right amount of safety stock?

That’s the million-dollar question! But, alas, there’s no black-and-white answer because the formula that’s right for you will depend on the type and size of your business. There are a few different methodologies to help you find that ‘just right’ balance:

• The Reorder Point Method: This is essentially a “low on fuel” trigger point for reordering based on how fast products sell and how long it takes for new shipments to arrive. 
• Average Demand Method: This one involves a teensy bit more math, and is more akin to calculating your inventory’s cruising speed. You start by calculating how much stock you sell on average over a set period, then schedule orders to maintain a steady flow without overstocking. 
• Economic Order Quantity (EOQ): This one’s quite a bit more math, but often the most accurate. Use this formula to balance holding costs with order costs, helping you order the ideal quantity every time. 

How should you adjust safety stock to meet seasonal demand spikes?

Safety stock becomes your best friend during peak seasons and promotions. This time of year is a classic example. With Black Friday and Cyber Monday just around the corner, you’ll want to significantly up your safety stock levels to make the most of holiday shopping patterns. 

Here’s a few industry stats to give you an idea of the size of buffer you’ll need:

• Over 87% of people take part in shopping during Black Friday and Cyber Monday events, and 64% of customers intend to shop online (Tideo).
• The average Black Friday shopper spends $430 (Business Dasher). 
• Amazon and Walmart will be the top two choices for online Black Friday/Cyber Monday shopping this year (Drive Research). 

Of course, your inventory management software can often help with some of the planning. Take 

Linnworks as a prime example:

“Linnworks effectively syncs inventory across Amazon, Walmart, and Shopify, preventing overselling and missed sales, which is a dream in high-volume events like Black Friday.”

Rich Tannous, Director of Operations, Tiesta Tea

3. Reorder points

We touched on reorder points earlier. Now it’s time to get into the nitty-gritty of what they are and how they play a crucial role in preventing back orders.

What are reorder points? 

Reorder points are specific stock level thresholds that, when reached, trigger a new purchase order (PO) for replenishment. Reorder point thresholds are typically based on your daily average consumption rate and the lead time required for new stock to arrive. 

How can you optimize reorder points?

One of the best ways is to use Just-in-Time (JIT) inventory management. A JIT strategy keeps stock levels lean as you only order what’s needed when you need it. This way, you can meet market demands while avoiding excess stock, unnecessary expenditure, and reduce holding costs.

How do automated purchase orders help?

When POs are automatically generated and sent to suppliers, human errors are eliminated, orders are processed quicker, and the entire supply chain moves more smoothly, ensuring products are ready for customers with less manual effort.

Warehouse management 

All too often, the terms inventory management and warehouse management are used interchangeably. But they’re not the same thing… 

The core features of an Inventory Management System (IMS) focus on tracking overall inventory levels and sales. In contrast, a Warehouse Management System (WMS) incorporates additional tools related to organization, layout, storage, handling, picking, packing, and shipping. Here’s a quick explainer video featuring SkuVault Core to set the scene. 

How does a WMS help prevent back orders? 

It’s all very well knowing what products you’re shifting on each channel. But if your sales and warehouse data aren’t in sync, you’ll still risk back order scenarios due to overselling. WMS systems provide up-to-the-second SKU availability across all locations. With an accurate picture of what’s actually in stock, back orders are much less likely. 

What WMS features help most with back order management? 

If you do end up with back orders, smart prioritization and automated picking and packing workflows are your best friends! Predefined rules and criteria can be applied to each backorder, meaning the most time-sensitive orders are fulfilled as soon as stock is available. Meanwhile, the speedy retrieval of back ordered items reduces fulfillment time and ensures accuracy—even during peak season mayhem!

“Before, it would be impossible for pickers to be productive without learning the layout of the warehouse. But with SkuVault Core, they can come onboard and be picking on day one.”

Chris Decker, Knot Hobbies

How does a WMS help improve customer satisfaction?

Aligning your WMS with external systems like customer relationship management (CRM) ensures seamless communication regarding backorder status and expected shipment dates. By keeping shoppers in the loop every step of the way, you build trust by demonstrating that you’re proactive and reliable, even in those annoying “temporarily unavailable” situations.

Solve your back order management challenges with Linnworks and Skuvault Core

Getting bogged down by overselling, stockouts, and back order chaos? We’re here to help!

Every business faces unique challenges when it comes to managing back orders. Whether your biggest roadblock is inaccurate inventory tracking, an outdated system, poor demand forecasting, warehouse inefficiencies, complex multichannel selling, or something else, we’ve got your back with all the tools you need to streamline your processes. 

Here’s just a few examples of ways we’ve helped clients to overcome their overselling and back order management woes:

• Blue Moon Appliance gained the confidence to sell on new channels.
• BulbAmerica improved reordering processes and increased team efficiency.
• Undersummers improved customer service and relationships. 
• Baby Cubby reduced out of stocks, mis-picks, and mis-ships.

Ready to see how we can do the same for you? Book a demo today to learn more! 

Back order management FAQs

Need a quick recap? Here’s a quick summary and a few key takeaways in FAQ form. 

What does back order mean? 

A back order occurs when a product is temporarily out of stock but still available for purchase on the basis it will be shipped once your stock has been replenished.

Is a back order the same as a stockout?

No. A back order lets customers buy now and receive the product later, while a stockout means the item is entirely unavailable until restocked. 

Why do back orders happen?

The most common causes include inaccurate inventory tracking, demand surges, supply chain delays, and complex supplier lead times.  

What’s the best way to prevent back orders?

The most effective strategies include accurate inventory tracking, setting reorder points, maintaining safety stock, and using demand forecasting tools.

What are the best practices for efficient back order management? 

Using an inventory management system with inbuilt warehouse management features improves real-time tracking. Features for automated purchase orders, smart fulfillment prioritization, and optimized picking and packing workflows further streamline your processes.