Backorder: What It Is and How It Happens

Backorder is a supply chain and inventory term that describes a customer order that cannot be fulfilled immediately because the product is out of stock, but will be shipped once inventory is replenished. For a beginner, think of a backorder as a reservation: the buyer has committed to purchase, the seller accepts the commitment, and the fulfillment is deferred until new stock arrives.

Backorders are a normal part of retail, wholesale, and manufacturing operations. They are different from a permanent stockout (where the seller cancels the order or discontinues the product) and from a pre-order (where a product is intentionally listed before production or launch). A backorder typically results from a mismatch in timing — demand arrives before supply.

Common causes of backorders include:

• Unexpected spikes in demand: Seasonal sales, promotions, viral trends, or sudden market interest can deplete inventory faster than planned.
• Supplier delays: Manufacturing problems, raw material shortages, freight delays, or customs holdups can push out replenishment dates.
• Poor forecasting or planning: Inaccurate demand forecasts or forgotten reorder points lead to late purchase orders.
• Long lead times: Products with longer manufacturing or shipping lead times (for example, overseas ocean freight) are more vulnerable to timing gaps.
• Inventory inaccuracies: Miscounts in the warehouse, lost stock, or misallocated inventory cause available stock to be overstated.

A typical backorder lifecycle looks like this:

1. Customer places an order online or in-store for an item that appears available or is allowed to be ordered despite zero physical stock.
2. The order is recorded and labeled as a backorder in the seller’s system, linked to the expected replenishment shipment.
3. The seller notifies the customer (depending on policy) and provides an estimated ship date or backlog timeframe.
4. The seller places a replenishment order with a supplier, or pulls inventory from a different location (transfer) to cover the order.
5. Once replenishment arrives and inventory is processed, the backordered item is picked, packed, and shipped to the customer to complete the order.

Backorders have both practical impacts and business implications:

• Customer experience: Delayed deliveries can frustrate buyers and harm trust if communication is poor. Friendly, proactive updates often make the difference between a retained customer and a lost one.
• Cash flow: Sellers may receive payment upfront for backorders (positive cash flow) or be paid on delivery depending on terms.
• Operations: Backorders increase workload for fulfillment teams (additional picking and shipping steps) and add complexity to inventory tracking.
• Metrics: Backorder volume and backorder rate are tracked as indicators of supply chain health. High rates usually trigger review of procurement and inventory policies.

Real-world example: A popular toy manufacturer underestimates demand ahead of a holiday and runs out of a top-selling item. Retailers accept backorders from customers, promising shipments when the next container arrives from the factory overseas. While waiting, retailers may provide estimated delivery dates and offer alternative items, partial shipments, or refunds to keep shoppers satisfied.

How consumers and businesses typically treat backorders:

• Consumers may accept a backorder if the item is unique or in high demand, or they may cancel if the wait is too long. Sellers often provide incentives like discounts, free shipping, or loyalty points to mitigate dissatisfaction.
• Businesses will analyze the cause of backorders and adjust replenishment strategies, safety stock, and supplier relationships to reduce future occurrences.

Backorders are manageable and common. For beginners, the key takeaways are: a backorder is a promise to fulfill a placed order when stock returns; it’s usually a timing problem between supply and demand; and communicating clearly with customers while improving inventory planning are the best ways to handle them. As you learn more about inventory concepts like lead time, safety stock, and reorder points, you’ll see how backorders fit into the larger picture of supply chain health.