Backorder vs Out of Stock: Meanings, Definitions, and Tips (2024)

1. Establish Safety Stock Levels

• Real-time inventory tracking: Utilize systems that allow for immediate updates on stock status to prevent sudden stockouts.
• Predicting demand: Make use of historical data to forecast demand and set a safety stock level that can cover unusual demand or supplier delays.
• Preventing customer disappointment: Keeping a safety stock ensures you don’t disappoint customers by running out of products unexpectedly.

A safety stock level acts as a buffer, safeguarding your business against unforeseen fluctuations in demand or supply. Ecommerce business owners need to maintain a well-organized inventory management system that keeps track of in-stock products in real time. Leveraging historical data allows for predicting future demand accurately, helping to avoid disappointing customers due to stockouts and maintaining a healthy business relationship with them.

2. Set Accurate Reorder Points

• Reorder point formula: Incorporate lead time demand and safety stock in days to find the exact point to reorder products.
• Technology integration: Utilize platforms like eFulfillment services for automated alerts regarding reorder points.
• Adjusting for special events: Enhance reorder quantities during promotions or product launches to meet heightened demand.

Setting accurate reorder points is pivotal in inventory management. This strategy involves calculating the exact time to reorder products to avoid running out, using technologies integrated with fulfillment service platforms. Being well-prepared for special events with higher sales velocity helps to maintain a steady stock level, ensuring customer satisfaction and enhanced sales performance.

3. Utilize Intelligent Forecasting for Popular Items

• Monitoring popular items: Regularly check inventory levels for fast-selling products.
• Adaptive planning: Alter strategies based on real-time data to avoid stockouts.
• Informed purchase decisions: Utilize real-time insights for smarter purchase order decisions.

Implementing intelligent forecasting strategies for popular items that tend to sell quickly ensures you maintain adequate stock levels. Keeping a keen eye on the demand trends and adjusting your strategies to the fluctuating market demands help in preventing backorders, fostering a responsive and agile inventory management system.

Companies like Amazon utilize sophisticated demand forecasting algorithms that analyze a massive amount of data including historical sales data, current market trends, and other relevant factors to accurately predict future demand and maintain optimal stock levels.

4. Diversify Your Supplier Network

• Backup suppliers: Establish connections with multiple suppliers for a continuous supply chain.
• Risk reduction: Lower the risk of stockouts by not relying on a single supplier.
• Supply chain stability: Maintain a steady flow of products even with disruptions.

Developing a diversified supplier network offers a safety net, ensuring that you have a steady supply of products, even when there are disruptions with your primary manufacturer. Having backup suppliers guarantees a continuous flow, reducing the risk of stockouts and fostering a resilient and flexible business model.

One company that uses this method well is Apple. Apple works with a diversified supplier base to reduce the risk associated with dependency on a single supplier. This strategy helps in mitigating the risk of backorders due to supplier failures.

5. Strategic Ordering of Products

• Balance in ordering: Find the right balance in ordering quantities to avoid overstocking.
• Preventing storage clogs: Avoid ordering excessively to prevent storage issues and inflated carrying costs.
• Strategic capital use: Ensure capital is used strategically and not tied up in overstocked inventory.

Strategically ordering products means maintaining a balance that prevents both overstocking and stockouts. It involves careful planning to ensure that the storage space is utilized optimally without inflating the carrying costs, promoting a strategic utilization of capital resources and fostering a healthy business environment.

6. Analyze Inventory Carrying Costs

• Understanding carrying costs: Delve deep into the factors affecting the carrying costs of your inventory.
• Strategic spending: Calculate additional costs over the per-unit price to strategize spending effectively.
• Effective inventory management: Analyze various elements like SKU numbers and turnover rate for a streamlined inventory system.

A deep understanding of inventory carrying costs, influenced by various factors including SKU numbers and inventory turnover rate, is pivotal in effective inventory management. By analyzing these dynamics, you can strategically plan your purchases to maintain an efficient inventory system while avoiding unnecessary expenditures.

7. Collaborate with eCommerce Fulfilment Providers (3PLs)

• Leveraging technology: Utilize technology offered by 3PLs like eFulfillment Service for intelligent inventory management.
• Timely alerts: Get timely alerts for stock replenishment to prevent backorders.
• Smooth business operations: Ensure business continuity and customer satisfaction by steering clear of backorder complexities.

Collaborating with a eCommerce fulfillment provider like eFulfillment Service not only helps in intelligent inventory management but also in navigating the intricate landscape of backorders. Leveraging their expertise ensures smooth business operations with timely alerts that help in maintaining satisfactory inventory levels, thereby promising a seamless customer service experience.