backordering

Backordering is an inventory and order-management practice in which a customer places an order for a product that is temporarily out of stock. The item is recorded as a backorder and is fulfilled when stock is replenished or when the supplier can provide the item. Backorders are common in retail, e-commerce, and manufacturing, especially for high-demand items or products with long replenishment lead times.

Process: When a backordered item is purchased, the seller confirms the order and provides an estimated ship date. If possible, partial shipments may occur; otherwise the entire order ships when the item becomes available. The seller may offer alternatives, such as a substitution or cancellation with refund. Customers are typically kept informed of ETA updates.

Reasons: Backorders arise from demand exceeding supply, supply chain delays, manufacturing backlogs, or seasonal spikes. They help preserve sales rather than cancel orders and can improve forecasting by capturing anticipated demand.

Benefits and risks: Benefits include reduced lost sales, better inventory planning, and stronger customer commitment. Risks include customer dissatisfaction due to delays, potential cancellations, and financial exposure from carrying backlogged orders and related carrying costs.

Management considerations: Effective backorder management requires accurate demand forecasting, visibility into supplier lead times, and policies for partial shipments and expected delivery dates. Metrics such as backorder rate and fill rate gauge performance. Clear communication and flexible policies improve customer relations. Tools like ERP or order-management systems automate tracking of backordered items.

Relation to other terms: A backorder differs from a pre-order, which involves items not yet released or manufactured.