Inventory backorders and their impact on inventory control

Inventory management can be a difficult task, especially if you have no way of knowing how many items have been backordered in your books.  An inventory backorder occurs when demand for a product exceeds the available supply. This can happen for various reasons, including high customer demand, production delays, or shipping delays. 

Backorders can have a significant impact on inventory control, as they can lead to stockouts and lost sales. To avoid these problems, it is essential to understand your backorder situation and the systems in place to manage backorders effectively.

Backorders reflect that you are receiving orders which your existing inventory levels couldn’t fulfill. For this reason, you need to issue a purchase order to your vendor to fulfill the backorder. If you are receiving hundreds of orders from different regions, managing backorders can turn into a nightmare.

If you have to order items from different suppliers, then you need to keep track of all the sales orders (for backordered items) and then after receiving the supplies, ship them to the right customer. Thus, managing multiple backorders can be a significant task. Frequent backorders reflect that you need to improve your inventory control.

Backordering occurs when a customer orders a product that is out of stock. The customer’s order is placed on hold until the product becomes available again. This can be frustrating for customers, as they may have to wait weeks or even months to receive their purchase.

In the meantime, the company must keep track of the customers’ orders and update them when the product is back in stock. If the company is not prepared to do this, it could result in poor customer service and potential loss of revenue. 

To avoid these adverse outcomes, companies should invest in quality inventory management software that can help with both tracking and reporting needs related to backorders.

There are several reasons backorders happen. A few of these you can control.

Erroneous forecasting

One of the main reasons for inventory backorders is incorrect forecasting. This can be due to many factors, such as guessing at future demand or not having enough data to make an informed decision. Whatever the reason, if your forecast is off, it can lead to stockouts and frustrated customers.

Data is the stepping stone for accurate forecasting. Cin7Orderhive offers extensive reporting features that can help you undertake data-backed decisions. You can generate real-time reports on the following aspects:

• Inventory reports: Backordered inventory, cost of goods sold (COGS), last purchase price, and more.
• Sales reports: Product-wise sales, country, state, and city-wise sales, and sales by stores.
• Purchase reports: Product-wise purchases, supplier-wise purchases, average and purchase price.
• Shipment reports: Returns summary, product-wise returns, unpaid invoices, and city-wise returns. 

The reports can help you understand the current demand for your products, returns, and under and over-stocking. With such insights, you can double down on the bestsellers and conversely reduce the intake of inventory that simply occupies your warehousing space.

Demand exceeding supply

When demand for a product exceeds supply, backorders occur. This may happen because raw materials for making a product are out of stock or because a product is currently trendy and everyone is buying it. There could be issues on the suppliers’ end, such as not having enough staff for transporting goods.

Erroneous warehouse management

Managing warehouses is filled with challenges. Manual stocktaking can lead to errors such as omission, and managing multiple warehouses is challenging without an automated system.

With a dedicated warehouse management system (WMS), such as Cin7Orderhive WMS, you get real-time visibility over your warehousing operations. Cin7’s WMS consolidates your multiple warehouses so that you can manage all your warehouses from a single platform. Moreover, with accurate inventory data, you can automate the purchase ordering process so that you don’t run out of inventory.

Human error

One of the most common causes of inventory errors is human error. This can include incorrect data entry, picking the wrong item from a shelf, or miscommunication between employees. While it’s impossible to eliminate all human error, there are some things you can do to minimize it.

For example, ensure your employees are appropriately trained and have clear instructions to follow. You can also put in systems that double-check for errors, such as requiring employees to scan items twice before they’re placed in the inventory system.

Backorders can have a significant impact on inventory levels and control. In some cases, they can result in a decrease in sales. In other cases, they can increase costs. In either case, it is essential to monitor backorders closely to ensure they are not negatively impacting your business. 

By regularly monitoring the number of backorders, you can quickly take action if the problem becomes severe. Cin7Orderhive allows you to monitor backorders with ease. Whenever there is a backorder, our inventory management software shows all the products being back ordered in the “alerts” tab.

In the alerts section, the backordered items are grouped based on the suppliers. Let’s assume Daniel is your supplier for mobile phones. So if there’s any backorder for a smartphone, you can select the name of the supplier (Daniel in this case), and Cin7Orderhive will populate all the relevant back ordered items that can be sourced from him. 

To sweeten the pot, you can directly create a purchase order from the alerts section. To save your time, details such as the SKU, quantity, and price are auto-populated.

Cin7Orderhive allows you to accept backorders, provides real-time visibility, and lets you create purchase orders for them. Book a demo with us to learn how we can help you with inventory backorders.