Understanding Back-order and Out-of-Stock: What Businesses Need to Know

One thing that is agreed on for the success of a business is inventory management, however, there is a lot that goes into inventory management, two of them being back-orders and out-of-stock. Let’s look at these two scenarios, what they mean, the difference between the two, how they affect a business and tips on how to manage them effectively.

Back-order:

A back-ordered item is a product that is not going to be available until a certain date for shipping to consumers. Businesses often will still sell back-ordered items with a guarantee that they will ship the items when they are available again. Backorders occur when demand outpaces supply or occasionally there is a shortage due to a logistics disruption, like we saw during COVID times.

Out of Stock:

Out-of-stock items are products that are not in stock and there is either no plan to restock or the restock date is unknown. In this situation businesses do not pre-sell the items as they cannot guarantee when the item will be available again. Out-of-stock items can happen due to a change of supplier, unavailable materials, or a rebranding among other reasons.

Key Differences Between Back-order and Out-of-Stock

The biggest difference between out-of-stock and back-order is that typically a company knows when they will have a back-ordered item again so they can ship it to customers. Since the company knows when they will have the item again, they feel comfortable in most cases still selling the product and letting the customer know the expected delivery date.

Implications for Businesses

It is important that customers’ expectations are managed with both out-of-stock and back-ordered items. Out-of-stock items should be clearly communicated and should be removed from any marketing and websites as soon as possible. With that in mind, back-order can be a way to increase sales, planned outages are a strategy that some companies employ to increase scarcity of items. This way instead of being reactionary to outages beyond their control, they plan the outages around drops or releases, creating increased interest and virality.

As long as customers understand when they will get a product most customers will still buy (as long as the timing is accurate and the brand has consumer trust). In reality most customers don’t really care if they get it tomorrow, they just want to know when they will get it. They would rather be told it will come in two weeks and they get it in one week, than be told one week and it come in two. Update emails, social media posts and e-tracking are all ways to ensure the customer is informed and educated about a product’s timelines.

Companies that want to avoid back orders or out-of-stock as much as humanly possible? Try diversifying vendors by having several vendors for the same items, make sure they are in different parts of the world so there are options when things go down.

To Sum it All Up

Back orders and out of stock situations don’t have to be scary but they need to be planned for. Every company should have a solid procedure for dealing with and communicating when there are inventory challeneges. Companies should aim to be more proactive rather than reactive to their inventory, understanding their customers’ buying habits and then adjust their strategy accordingly, being creative and not being afraid to try something different like drops or using back orders proactively.