Backlog vs Backorder in Supply Chain: The Difference
Quick answer: A backorder is an order for an item that is out of stock right now; the seller accepts it and ships it when new stock arrives. A backlog is the total pile of orders that have been received but not yet fulfilled, for any reason, including backorders, supplier delays or not enough warehouse capacity. In short: a backorder is about missing inventory, a backlog is about unfinished work.
| Backorder | Backlog | |
|---|---|---|
| What it is | An order for an out-of-stock item | All orders received but not yet fulfilled |
| Main cause | Inventory shortage | Demand exceeds processing or production capacity |
| Scope | Individual products / orders | The whole order queue |
| Typical fix | Restock, give an estimated ship date | Add capacity, improve inventory and order management |
In supply chain management, backlog and backorder are becoming more and more common. At present, many businesses do not know how to effectively handle backlog and backorder. For this reason, it’s important to have a better understanding of backlog and backorder.
In this article, I will explore the true meanings of backlog and backorder and how to effectively handle them. By reading this article, you will be able to handle backlog and backorder calmly and move your business forward more smoothly.
What is the Meaning of Backorder?
A backorder is a customer order for a product that is temporarily out of stock. Instead of rejecting the order, the seller accepts it and ships it as soon as new inventory arrives from the supplier or manufacturer. The sale is secured, but the delivery time is postponed, so the customer has to wait longer than usual.
Advantages Of Backorders
Save On Storage Space
If you don’t have a lot of inventory, you don’t need large warehouses except for some items that have been sold all the time.
Minimize Carrying Costs
When you hold inventory that you can’t sell, you increase your carrying costs. With a backorder, you only produce after you get the order, so carrying costs are minimal.
Discount For Customers
You have saved a lot of money between saving warehouse rent and avoiding the extra cash flow from wasted inventory. When you save money, you can offer your customers discounted goods.
Create Hype For Your Product
The demand for some goods is very high. If they are often out of stock, customers will want more. This creates a kind of hype around the product, making it an ideal product for people, and making loyal customers wait to buy it. Another advantage is that the product is spread through word of mouth.
Deliver Custom Products
Because you do not hold inventory and there will be a slight delay in the delivery of products, you can accept customization requests. One company that is very popular in this regard is Rolls Royce, which produces customized cars. This is an example of luxury goods, many companies will provide product customization services for consumers.
Disadvantages Of Backorders
Losing Out On Business
Customers may not want to wait that long, even if they like it. If their orders are not processed promptly, they will also buy through other channels. In that case, you will lose the business.
Loss Of Market Share
If customers often encounter the problem of backorders, they will be dissatisfied with this and may choose another trusted brand, so your brand’s market share will be lost.
Increased Complexity
Backorders increase the company’s need to handle customer service, which will make other businesses or things more complex.
Effective Tips To Handle Backorders You Must Follow
1
Notify Your Customers
One of the best ways to deal with the back order is to notify your customers that the item is currently out of stock, but you will deliver to them on a certain date. You need to have honest communication with your customers. At the same time, your product page is also essential, which is related to your sales.
2
Make An Email List
Obtain e-mail addresses of customers who want to be notified when specific products are restored to inventory. Use the principle of scarcity to stimulate customer enthusiasm. The best way to retain customers is to create a sense of interest and excitement among potential customers.
3
Inform Customers When Restocked
One of the biggest benefits of having an email list is that you can immediately notify customers when the product is back in stock. Email all interested customers to let them know that you have delivered the goods. Let customers know by email that this product is being restocked and inform them by email when restocked. This will increase the goodwill of customers toward your store, and they will support your store more.
4
Give Estimated Delivery Time
If demand for a product exceeds supply, make sure to post its estimated arrival time, hence shoppers will not be blinded. It helps you keep your customers informed.
What is the Meaning of Backlog?
In the field of e-commerce, backlog refers to the number of customer orders that have not yet been shipped. In manufacturing and B2B sales, an order backlog (or sales backlog) also means the value of confirmed orders that have not yet been produced or delivered.
Why does Backlog happen?
There are many underlying causes of the backlogs. Some causes are as follows:
Pre-orders
Customers usually need a large number of products or book before the holidays. This is one of the most common types of backlogs, especially for b2b e-commerce companies. Therefore, this backlog has nothing to worry about. You just need to ensure that they are delivered as promised.
Issues At The Suppliers’ End
Sometimes, your backlog may be the result of poor operation and management of the supplier side supply chain. It may include Poor demand plans, production delays, logistics challenges, lack of inventory management, etc.
This is an external factor beyond your control. However, as a business owner, you should look for other ways to purchase goods and meet customer requirements.
Demand Outperforming The Supply
Sometimes, some products may suddenly become popular among users. In this case, the supplier cannot provide you with enough inventory. As time goes by, the manufacturer will increase its output, and you can expect regular supply. Therefore, this backlog is not a cause for concern. This means that you will continue to benefit from this particular product category in the future.
Internal Challenges
There may be some internal challenges in your supply chain, which may also lead to unmanageable order backlogs.
How to Achieve Effective Backlog Management?
First, you need to analyze whether your current inventory management is enough for you to complete the successfully submitted orders and whether the supply chain is a bottleneck.
In addition, consider further investment in an order management system. OMS can help you manage your backlog. So you can optimize your order fulfillment, inventory management, and logistics.
As mentioned earlier, when there is a difference between the system inventory and the actual inventory in the warehouse, there is usually no inventory in the sales. Such orders must be delayed until the arrival of new goods. In this case, it is recommended to keep emergency stock in the warehouse, so that it is not necessary to wait for new stock to arrive.
It is important to handle the backlog before it becomes too cluttered to manage, and it is equally important to inform the customer throughout the order processing period. Assume that you will provide a preliminary delivery schedule when the customer places an order. But if there is any delay due to shipping, you must communicate the reason with your customers.
Conclusion
Now you know the difference between backlog and backorder. We also discussed how to efficiently handle backorders and how to achieve effective backlog management. Honest FulPhilment provides efficient inventory management implementation. If you want to know more about it, please contact us today.
FAQ
What is the difference between backlog and backorder?
A backorder is a single order for an item that is out of stock, accepted now and shipped when new stock arrives. A backlog is the total volume of orders received but not yet fulfilled, whether or not the items are in stock. Backorders are one possible cause of a backlog.
What is an order backlog?
An order backlog is the number or value of customer orders that have been received but not yet shipped or completed. In manufacturing and B2B sales it is also used as a measure of future revenue already secured.
What is backlog in supply chain management?
In supply chain management, backlog means demand that has built up faster than the business can process it, such as orders waiting in a warehouse or production orders waiting for capacity or materials. A growing backlog signals a bottleneck in stock, labor or supplier performance.
What is a backorder in supply chain?
A backorder in supply chain is an order the seller accepts for a product that is temporarily out of stock. The order is held and fulfilled as soon as the supplier replenishes inventory, usually with an estimated ship date given to the customer.
What causes a warehouse backlog?
Common causes are sudden spikes in demand, holiday peaks and pre-orders, supplier delays, inaccurate inventory records and too few warehouse staff or systems to pick and pack orders on time.