What is Backordering?
... and why Jedi Swordmasters love it.
Your customers love your product. In fact they love it so much that your sales are through the roof. You have run out of stock as even your safety stock levels did not predict such spike in sales. You have a positive problem. Still it is a problem and a big one. You are unable to meet your standard delivery deadlines and angry customers are queuing behind your door. In a situation like that you have two choices: stop selling more and tell your customers that you are out of stock or start opening backorders.
What is a backorder?
Simply put - backordering is a way to manage your customers' expectations in an out of stock situation. By opening a backorder you tell your customer that some or all products about to be purchased might take longer than usual to deliver. This way you can continue selling. You can start shipping products that are available leaving out of stock products to backorders to be shipped separately. Managing backorders is not a complex exercise in case one of your products is out of stock on one sales order. It gets complicated when several products on several orders are out of stock. If you are a small manufacturer you need a good tool to ship partial sales orders, to prioritize your production orders and related material supply orders.
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Let's run through a quick example. Let's say there is a hidden workshop on a distant asteroid producing and selling hand-crafted Jedi lightsabers to customers across the galaxy. Forging a lightsaber is a complex process that requires number of rare components as well as the ability to master Force. One key component of a lightsaber is a kyber crystal that powers the plasma blade. Every lightsaber needs one. Let's assume the workshop operates with the following characteristics:
- Product portfolio includes green and blue lightsabers that in turn require green and blue kyber crystals as key material in production. Blue lightsabers typically sell more than green ones
- Typical sales orders include several units of both products
- Typically products are shipped from stock instantly with a same day delivery
An unexpected sales peak occurs for green lightsabers (read: Luke Skywalker poses with a green lightsaber on Jedi Magazine) and sales go through the roof. Safety stock keeps things under control for few weeks, but then out of stock situation occurs. Keeping same day delivery promise is no longer possible. To avoid disappointing customers Jedi Swordmasters in the workshop starts accepting backorders with an open delivery term. They use a cloud inventory management and production planning software that allows them to:
- Ship out blue lightsabers on open sales orders while keeping green lightsabers in backorders
- Consolidate green ligthsabers on backorders for production and plan a production, material supply and shipping schedule for open backorders
- Inform customers of expected delivery date for open backorders
- Get immediate notification from software in case further delays occur due to production or supply chain disruptions and inform the customers promptly
This way Jedi Swordmasters do not lose sales to a competing workshop run by Sith Swordmasters on a different asteroid. Yes, its more work for backoffice and for the customer support, but you are able to satisfy your customers assuming you don't keep them waiting for too long.
It is all about customer service. Basically you are asking your customers to pay in advance for an order which has a longer than usual or even an unknown delivery date at the time of purchase. Thus, customers are unforgiving in case you are unable to meet delivery deadlines for your backorders. You need to over-communicate. When further delays occur (and they will) then you need to inform your customers in advance. To do that you need to know this information from purchase or from production as soon as possible.