Managing Backorders: Practical Best Practices for Merchants and Warehouses

Backorders are inevitable in most supply chains, but effective management makes them controllable and far less damaging to your business. This entry focuses on beginner-friendly, practical steps merchants, warehouses, and fulfillment teams can apply to prevent and handle backorders gracefully.

1. Improve visibility and data accuracy

Accurate inventory records are the foundation. If your system shows stock that isn’t physically available, backorders will surprise you. Implement routine cycle counts and reconcile discrepancies quickly. Use a single source of truth—your WMS, ERP, or inventory management system—so all channels (online store, marketplaces, stores) draw from the same available quantity.

2. Use basic demand forecasting

Even simple forecasting helps. Start with historical sales for the same period last year, adjust for promotions, and factor in lead times. Prioritize fast-selling SKUs with higher safety stock and slower sellers with leaner buffers. Over time, add more variables like seasonality and promotions.

3. Set reorder points and safety stock

Reorder points tell you when to place a replenishment order, and safety stock cushions against variability. For a beginner approach:

• Estimate average lead time (days between reorder and receipt).
• Estimate average daily usage (sales per day).
• Reorder point = average daily usage × lead time + safety stock.

Safety stock can be a simple multiplier (e.g., 20–50% of expected usage over lead time) until you adopt more advanced calculations.

4. Shorten lead times and diversify suppliers

Lead time is one of the most powerful levers. If it takes less time to get stock, you need less inventory and experience fewer backorders. Work with suppliers to speed production, use faster shipping methods for critical items, and consider multiple suppliers to reduce single-source risk.

5. Use tiered fulfillment and transfers

If you operate multiple warehouses or fulfillment centers, enable transfers so inventory from one location can cover orders from another. Cross-docking and direct transfers reduce wait times and prevent backorders when one site is low but another has stock.

6. Consider flexible fulfillment options

Options such as drop-shipping, vendor-managed inventory (VMI), or using 3PL partners for urgent items provide flexibility. Drop-shipping can eliminate your need to hold certain SKUs, while VMI shifts replenishment responsibility to the supplier.

7. Prioritize orders and manage partial shipments

When stock returns, decide which orders to fulfill first. Prioritize by promised ship date, customer value (e.g., VIPs), or first-in-first-out of backorders. If partial shipments are acceptable, ship available items immediately and send remaining items later—just make sure shipping costs and customer expectations are managed.

8. Communicate and automate customer updates

Automated notifications reduce inquiries and improve trust. Inform customers when an item is backordered, give an estimated delivery date, and send updates if ETA changes. Offer options at purchase—cancel, notify when back in stock, or accept backorder—to reduce abandoned carts.

9. Track the right metrics

Monitor metrics that reveal root causes and trends:

• Backorder rate: percentage of orders placed that become backorders.
• Fill rate: percentage of demand met immediately from available stock.
• Days sales of backorders: how many days of demand are pending.
• Lead time variance: measure of supplier consistency.

Use these metrics to prioritize improvements—if lead-time variance is high, focus on procurement; if backorders concentrate on a few SKUs, review forecasting and safety stock for those items.

10. Common mistakes to avoid

• Ignoring inventory accuracy: Skipping cycle counts and relying on system data without verification invites surprise backorders.
• Overcomplicating early: Trying advanced statistical forecasting before data quality is good will lead to poor decisions. Start simple.
• Poor communication: Not telling customers about backorders increases support costs and damages reputation.
• Single sourcing critical SKUs: Relying on one supplier for top-selling items increases vulnerability to delays.

11. Practical example workflow

Imagine an e-commerce merchant selling kitchen blenders:

1. Sales spike during a promotion and a popular model sells out.
2. The merchant’s inventory system marks new orders as backorders and auto-sends a message offering a choice between a backorder, cancellation, or an alternate model.
3. The merchant places an expedited reorder with a secondary supplier to shorten lead time and initiates a transfer from a nearby fulfillment center that has limited stock.
4. Once replenishment arrives, orders are prioritized by promised ship date and customer preference, then shipped in batches to minimize handling.

Backorders don’t need to be chaotic. With basic inventory hygiene, sensible safety stock, supplier management, and clear communication, merchants and warehouses can reduce their frequency and manage them in ways that protect revenue and customer trust. Over time, integrating these practices into WMS or ERP workflows makes backorder handling automated and predictable.