What Does Backorder Mean? And Why Jedi Knights Can’t Do Without it

Picture the scene. 

It’s a normal day for your small manufacturing business.  

Everything is running smoothly.  

You take a second to appreciate the thriving workshop you have built from scratch.  

You open up a new email that just came through on your smartphone. You read it through twice to make sure you haven’t made a mistake.  

An order the size of a small moon has come in through your new Shopify store.  

Even if you worked through the night for a week, you still wouldn’t have the time to complete the entire order.  

What would you do?  

Do you:  

A — Send a polite email to the customer, apologizing and telling them it cannot be done.  

or

B — Flick the order to “In Progress” on your software’s dashboard and get to work.  

Of course, most of us want to choose “B” but would think:  

“That’s a nice idea, but we can’t expect a customer to wait that long.” 

We know you would never sacrifice your craftsmanship, or risk letting your reputation slide.  

But there is a solution.  

This is where backordering comes in.  

If you remember Accounting 101 you might remember your professor asking you “what does backorder mean?” 

But it’s been a few years now.  

Maybe you are a manufacturing specialist or artisan maker, and all of this jargon sounds like an alien language to you 

That’s why we’re here to give you an easy-to-understand backorder definition.  

In the next 10 minutes, you will know the “What?”, but also the “How?” and the “Why?” 

In short, you will have Jedi-like intuition when it comes to predicting the need to backorder, so you will never have to turn down a sales order again.  

No matter how colossal it might be.

What does backorder mean for your business? Well, it’s a powerful way to keep your business in the game if you get a sudden spike in demand. It’s one weapon in your arsenal — you can find ways to prevent most stockout cases so a backorder is a last resort.

What is Backorder Exactly? 

Let’s be clear.  

If you need to open a backorder you have a problem...  

...but good news — it is a positive problem! 

It means your marketing is on point. Your reputation is second to none. Not only do you have customers coming back, but they’re telling their friends and family about you.  

This surge in sales may be unexpected but make no mistake — it's a great opportunity for your business. Net sales growth is perhaps the biggest KPI for your business, but can you keep everything else up too? 

Before you can grow, you must understand.  

Let’s boil backordering down to a single line. The simple backorder definition is this:  

A way to manage your customers’ expectations in an out-of-stock situation. 

That’s it. We put the customer at the heart of it because the customer is the most important part of any business.   

By opening a backorder channel 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.  

If one of your products is out-of-stock, then opening a backorder is a simple task.  

In the event of a multiple item stockout, then this becomes more complicated. The more items you have out-of-stock, the more difficult and longer a process this it.  

Backordering is like having an emergency power supply: it should be used sparingly, and in true stock emergencies.  

What does backorder mean for your business’ response to emergencies? 

It is a power that can get you out of a sticky situation, and lets your business live to fight another day.  

But use this power wisely...

How Does a Typical Backorder Work? 

Retaining your customers is the top priority.  

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 the delivery deadlines for your backorders. What does backorder mean? A solution to this problem.  

You need to keep up good communication with your customers. Let them know about the progress on their order. You can even set up shipping notifications for your Shopify store.  

Without excellent communication your customer might feel they’ve been forgotten and cancel their order. This makes your situation worse, as you might now have dead stock on your hands.  

When further delays occur (and they will), 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.  

This is why you need robust software to track and manage backorders. Don’t leave customers waiting longer than they need to.  

In addition, you could look into alternative methods to reduce the need to backorder.  

Remember, each backordered item greatly increases the difficulty of managing it. You have to figure out which raw materials are missing from which orders and consolidate them into one backorder.  

You then need to put what you can make to the top of your manufacturing queue. This way you can ship orders you have the materials for.  

Keeping track of expected delivery dates for supply orders lets you project an accurate order fulfillment date for your customers.  

As the backordered materials come into your workshop, you need to be on top of what is available, and which orders you can completely finish.  

This is not the time to leave tons of work-in-progress in your inventory. Each 100% finished product is another thing checked off your to-do list for good.  

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.

  This is the basic model of how to use backordering to keep going in an out-of-stock situation. When a large order comes in, don’t put your whole workshop on hold. You can make a partial delivery to get the order fulfillment ball rolling. To minimize losses, create a backorder straight away, that completes the    order fulfillment process    at a later date.

This is the basic model of how to use backordering to keep going in an out-of-stock situation. When a large order comes in, don’t put your whole workshop on hold. You can make a partial delivery to get the order fulfillment ball rolling. To minimize losses, create a backorder straight away, that completes the order fulfillment process at a later date.

When You Should Make a Backorder 

Knowing the right time to engage a backordering drive is half of the battle.  

Let’s go through an example from a galaxy far, far away.   

Traditionally lightsabers cannot be bought. They can only be created by the Jedi who will wield it.  

But one enterprising Jedi thought: “What if normal people could buy a lightsaber?” So he started his own workshop, hidden on a distant asteroid (so Imperial cruisers cannot find him).  

Our maker has a good feeling about this — he knows there is a demand for handcrafted lightsabers and people getting in on the Jedi craze.  

He starts out small and his product portfolio contains two SKUs

  • — Green lightsabers; and  

  • — Blue lightsabers. 

While this new business is getting off the ground, there is no demand to produce a lot of lightsabers. Due to this, our Jedi decides to offer next-day delivery. He is easily meeting demands, so why not?    

There is only one problem.  

Most of the materials he needs are common and easy to obtain. He can easily set up a reorder schedule with passing traders. 

But it’s another story for the most important material — the Kyber crystal that powers the blade is rare and difficult to obtain. Because of this, their availability can never be predicted. When they are available it’s a rush to outbid the other buyers. 

Thankfully he runs a lean workshop and has the positive cash flow to make these unpredictable purchases. 

This is fine for a light production schedule but is a problem that can get out of hand.   

One week, Luke Skywalker appears on the front cover of Jedi Magazine, posing with his green lightsaber.  

This sparks some serious interest in lightsabers, and demand increases, especially for green ones.  

Safety stock keeps things under control for a few weeks, but then the out of stock situation occurs.  

Keeping the next-day delivery promise is no longer possible.  

What does backorder mean for his bottom line? The answer is here. 

To avoid disappointing customers, our Jedi Master in the workshop starts accepting backorders with an open delivery term.  

He uses cloud-based production planning and inventory management software that allows them to: 

  • Ship out blue lightsabers on open sales orders while keeping green lightsabers in backorders; 

  • Consolidate green lightsabers on backorders for production; 

  • Plan a production, material supply, and shipping schedule for open backorders; 

  • Inform customers of expected delivery date for open backorders; and 

  • Get immediate notifications in case further delays occur due to production or supply chain disruptions. They can inform the customers promptly. 

The result?  

All the budding Jedi in the galaxy won’t be disappointed because they know their orders will be fulfilled to their satisfaction.  

That way, the store won't lose sales to the Sith lightsaber craftsman on another asteroid.   

The choice to backorder means fewer people turn to the dark side.  

Everything is okay with the backorder meaning - the workshop and the galaxy are in complete harmony.  

But is this a sustainable tactic? We can show you how to maintain the harmony you built up in your workshop. 

What Does Backorder Mean for Your Business? 

So you’ve had a small taste of the stress that sudden, large orders can bring. Backordering helped you out, but you shouldn’t rely on it.  

Backordering helps your business survive, but you want your business to thrive.  

Don’t let backordering become a habit you can’t kick. There are other solutions to explore.  

Backordered, you have. 

And you were thrilled by this new-found business power. You feel like you can take on anything.  

You can keep costs down while being completely anti-fragile.  

Do you want your business to be forever playing catch-up, or always on top of every situation.  

If a customer pays in advance for a backordered product once, then they might forgive your business.  

What does backorder mean for your future? It’s a common strategy in business - provided you keep up good communication channels and customer care policies, as described above.  

But what if this starts happening more and more?  

Would you be so forgiving if you were the customer?  

This is where cloud-based inventory management software comes into play. There are other strategies you can employ.  

Stop a stockout before it happens. After all, prevention is cheaper than the cure. 

We want to see backorders become a rarity. Unexpected stockouts can be a stressful time for any business owner. That’s why complete production planning and inventory management software can set you up to thrive, not just survive. That’s gives a backorder meaning.

End Your Backorder Woes 

Whether you are making heaters on Hoth or dehumidifiers on Dagobah, you can reach a point where opening a backorder becomes an extreme rarity.  

Such an odd occurrence that you may end up forgetting the last time you made one.    

They become a memory of the old ways, about how things used to be in your workshop.  

It becomes less “out of the blue” and more “once in a blue moon”.  

Say the Christmas rush is even greater than expected.  

No problem.  

There’s no need to run around trying to muster the raw materials (and staff overtime) to fulfill these orders.  

What does backorder mean as part of your business? Wouldn’t it be great for backordering to be another string to your bow, rather than a crutch? 

You can easily set up and manage your backorders from your computer.  

You can plan a workable course of action with Katana to bring complete workshop control to your fingertips: 

— Communicate your plan of action to your whole team. They will know what they need to do and get straight to it;  

— Set up automatic reorder points so stockouts don’t bother you and halt your production; and  

— Streamline supply orders with your manufacturing flow. Always keep to your original deadlines and keep your promises to your customers.

Never go into stockroom panic-mode again.  

Complete Inventory and Manufacturing Management for Small Craftspeople, Manufacturers, and Artisans 

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Kristjan VilosiusComment