Meta Description: Complete guide to backorder inventory management. Learn what backorders are, how to manage them, strategies to minimize backorders, and how to track backordered shipments with DreamFulfill for free. No registration required.
Backorder inventory — a comprehensive guide to understanding and managing backorders in your supply chain. This guide covers what backorders are, the difference between backorders and stockouts, how to manage backorder inventory effectively, strategies to minimize backorders, and how to track backordered shipments with DreamFulfill. Whether you are an ecommerce business owner, a supply chain manager, or a logistics professional, this guide will help you handle backorders efficiently and maintain customer satisfaction.
This complete guide explains backorder inventory management and how to track your backordered shipments using DreamFulfill.
| Term | Definition |
|---|---|
| Backorder | A customer order for a product that is currently out of stock but will be fulfilled when inventory becomes available |
| Backorder inventory | Products that have been ordered by customers but are not yet in stock; the order is placed on hold until inventory arrives |
| Stockout | A situation where a product is completely out of stock and cannot be fulfilled |
| Pre-order | An order placed before a product is officially released or manufactured |
| Characteristic | Description |
|---|---|
| Customer has paid | Customer has placed an order and paid for the product |
| Product is unavailable | Inventory is currently at zero or insufficient |
| Fulfillment is pending | Order will be shipped when inventory arrives |
| Expected delivery date | Customer is given an estimated date when product will ship |
| Communication is critical | Customer must be informed about backorder status |
| Aspect | Backorder | Stockout | Pre-order |
|---|---|---|---|
| Order accepted | Yes | No | Yes |
| Payment taken | Usually yes | No | Usually yes |
| Product status | Out of stock, but replenishment expected | Out of stock, no replenishment date | Not yet released |
| Customer expectation | Will be fulfilled later | Not fulfilled | Will be fulfilled upon release |
| Fulfillment timeline | Days to weeks | N/A | Weeks to months |
| Communication | Expected delivery date provided | "Out of stock" message | Release date provided |
| Impact on business | Moderate (if managed well) | High (lost sales, customers) | Low (if managed well) |
| Cause | Description | Frequency |
|---|---|---|
| Demand spikes | Unexpected increase in customer demand | High |
| Supply chain disruptions | Delays from suppliers, manufacturers, or carriers | High |
| Poor inventory forecasting | Underestimating demand for a product | Medium |
| Seasonal demand | Holiday or seasonal spikes in orders | High |
| Production delays | Manufacturing issues, raw material shortages | Medium |
| Supplier lead time changes | Longer than expected production or shipping times | Medium |
| Quality control issues | Product fails inspection, cannot ship | Low |
| Transportation delays | Customs, weather, carrier issues | Medium |
| Promotional success | Unexpectedly high response to a promotion | Medium |
| Inventory management errors | Miscounts, system errors, theft | Low |
| Industry | Backorder Impact | Common Causes |
|---|---|---|
| Ecommerce | Lost sales, negative reviews, customer churn | Demand spikes, fulfillment delays |
| Automotive | Production delays, dealer dissatisfaction | Parts shortages, supply chain issues |
| Electronics | Rapid product cycles, high demand | Chip shortages, new product launches |
| Fashion | Seasonal trends, size/color variations | Forecast errors, fast fashion |
| Pharmaceutical | Patient health impacts, regulatory issues | Raw material shortages, quality control |
| Food and beverage | Perishable goods, shelf life concerns | Harvest issues, supply chain disruptions |
| Home improvement | Project delays, contractor dissatisfaction | High demand, raw material costs |
| Impact | Description | Cost Example |
|---|---|---|
| Lost immediate revenue | Customer may cancel or choose competitor | $500-$5,000 per order (varies) |
| Lost future revenue | Customer may not return | 10-30% loss of customer lifetime value |
| Increased operational costs | Extra communication, expedited shipping | $5-$20 per backorder |
| Inventory carrying costs | Holding inventory for backorders | 20-30% of inventory value annually |
| Expedited shipping costs | Rush shipping when inventory arrives | 2-3x standard shipping cost |
| Customer acquisition costs | Replacing lost customers | $50-$500 per new customer |
| Brand damage | Long-term reputation impact | Difficult to quantify |
| Impact | Description | Customer Reaction |
|---|---|---|
| Frustration | Customer wants product now | 30-40% may cancel order |
| Uncertainty | Not knowing when product will arrive | 20-30% may leave negative review |
| Trust erosion | Customer loses confidence in business | 15-25% will not return |
| Competitor switching | Customer buys from another brand | 40-60% will try competitor |
| Negative word-of-mouth | Customer tells others about bad experience | 10-20% share negative experience |
| Statistic | Source |
|---|---|
| 30-40% of customers will cancel a backordered item | Industry research |
| 60% of customers will not wait more than 7 days for a backorder | Consumer survey |
| 20-30% lower customer lifetime value for customers who experience backorders | Retail analytics |
| 40-60% of customers who experience a backorder will try a competitor | Consumer behavior study |
| $100 billion+ in lost revenue annually due to stockouts and backorders | Supply chain research |
| 10-15% increased operational costs during backorder management | Supply chain analytics |
| Strategy | Description | Implementation |
|---|---|---|
| Safety stock | Maintain extra inventory to buffer against demand spikes | Calculate using demand variability and lead time |
| Demand forecasting | Use historical data and trends to predict demand | Tools: Excel, ERP, AI-based forecasting |
| Supplier diversification | Source from multiple suppliers to reduce risk | Identify 2-3 alternative suppliers per product |
| Lead time monitoring | Track supplier lead times to identify delays early | Automated alerts, regular supplier reviews |
| Inventory buffer | Keep additional inventory for high-demand periods | Seasonal adjustments, promotional planning |
| Real-time inventory tracking | Monitor inventory levels continuously | Inventory management software, DreamFulfill |
| ABC analysis | Prioritize inventory management for high-value items | A items: 80% of value, 20% of items |
| Strategy | Description | When to Use |
|---|---|---|
| Communicate immediately | Inform customer about backorder as soon as possible | As soon as backorder is identified |
| Provide expected date | Give realistic estimate of when product will ship | Within 24 hours of backorder detection |
| Offer alternatives | Suggest similar products that are in stock | When customer is flexible |
| Partial shipment | Ship available items, backorder the rest | When order has multiple items |
| Discount for delay | Offer discount or free shipping for the wait | For high-value customers or long delays |
| Expedited shipping | Ship via faster method when inventory arrives | When inventory becomes available |
| Automatic cancellation | Cancel if backorder exceeds certain time | Set threshold (e.g., 14 days) |
| Upgrade offer | Offer a higher-tier product if available | For premium customers |
| Touchpoint | Message | Channel |
|---|---|---|
| Order confirmation | "Thank you for your order. This item is currently on backorder. Expected ship date: [date]" | Email, order page |
| Backorder notification | "Your order for [product] is on backorder. We expect to ship by [date]." | Email, SMS |
| Status update | "Good news! Your backordered item is expected to arrive at our warehouse on [date]." | |
| Shipping confirmation | "Your backordered item has shipped! Track it here: [link]" | Email, SMS |
| Delivery confirmation | "Your package has been delivered! Thank you for your patience." | |
| Follow-up | "How was your experience? We appreciate your patience with the backorder." | Email, survey |
Subject: Your order for [Product Name] is on backorder
Dear [Customer Name],
Thank you for your recent order #[Order Number] for [Product Name].
We wanted to let you know that this item is currently on backorder due to high demand. We expect to receive new inventory by [Expected Date] and will ship your order immediately once it arrives.
What you can expect:
Your options:
We apologize for the inconvenience and appreciate your patience. As a thank you, we've added [discount or free shipping] to your account.
If you have any questions, please reply to this email or contact us at [support email].
Best regards, [Team Name]
| Metric | Definition | Target | Calculation |
|---|---|---|---|
| Backorder rate | Percentage of orders that are backordered | <5% | (Backorder orders / Total orders) × 100 |
| Backorder fill rate | Percentage of backorders that are fulfilled | >95% | (Backorders fulfilled / Total backorders) × 100 |
| Backorder duration | Average time to fulfill a backorder | <7 days | Sum of days to fulfill / Number of backorders |
| Backorder cancellation rate | Percentage of backorders cancelled by customers | <15% | (Cancelled backorders / Total backorders) × 100 |
| Inventory turnover | How quickly inventory sells and is replaced | 4-6x/year | COGS / Average inventory value |
| Stockout rate | Percentage of time a product is out of stock | <2% | (Days out of stock / Total days) × 100 |
| Customer satisfaction (CSAT) | Customer satisfaction with backorder handling | >4/5 | Survey responses |
Backorder Rate Example
| Month | Total Orders | Backorder Orders | Backorder Rate |
|---|---|---|---|
| January | 1,000 | 50 | 5% |
| February | 1,200 | 40 | 3.3% |
| March | 1,500 | 75 | 5% |
| April | 1,800 | 90 | 5% |
| May | 2,000 | 60 | 3% |
| June | 2,200 | 110 | 5% |
| Average | 1,617 | 71 | 4.4% |
Backorder Duration Example
| Backorder ID | Date Backordered | Date Fulfilled | Duration (Days) |
|---|---|---|---|
| B001 | June 1 | June 5 | 4 |
| B002 | June 1 | June 8 | 7 |
| B003 | June 3 | June 10 | 7 |
| B004 | June 5 | June 12 | 7 |
| B005 | June 10 | June 15 | 5 |
| Average | 6 days |
| Strategy | Description | Implementation |
|---|---|---|
| Safety stock calculation | Determine optimal safety stock level | Safety Stock = Z × σ × √L (Z=service level, σ=demand variability, L=lead time) |
| Reorder point system | Set automatic reorder trigger | Reorder Point = (Average Daily Demand × Lead Time) + Safety Stock |
| EOQ (Economic Order Quantity) | Optimal order quantity to minimize costs | EOQ = √(2DS/H) (D=demand, S=setup cost, H=holding cost) |
| ABC analysis | Prioritize inventory management effort | A items: 80% value, 20% items; B items: 15% value, 30% items; C items: 5% value, 50% items |
| Demand forecasting | Use data to predict future demand | Moving averages, exponential smoothing, AI forecasting |
Product: Wireless Earbuds
| Parameter | Value |
|---|---|
| Average daily demand | 50 units |
| Average lead time | 14 days |
| Demand standard deviation | 15 units |
| Lead time standard deviation | 3 days |
| Desired service level | 95% (Z = 1.65) |
Safety Stock = 1.65 × √(14 × 15² + 50² × 3²) = 1.65 × √(14 × 225 + 2,500 × 9) = 1.65 × √(3,150 + 22,500) = 1.65 × √25,650 = 1.65 × 160.16 = 264 units
Reorder Point = (50 × 14) + 264 = 700 + 264 = 964 units
| Technology | Description | Benefits |
|---|---|---|
| Inventory Management System (IMS) | Track inventory levels in real-time | Prevent stockouts, automate reordering |
| ERP System | Enterprise Resource Planning | Integrated inventory, sales, purchasing |
| Demand Planning Software | AI-powered demand forecasting | More accurate predictions |
| Supply Chain Visibility Platform | Track inventory across the supply chain | Early warning of delays |
| Automated Reorder System | Auto-generate purchase orders when inventory hits reorder point | Reduce manual work |
| DreamFulfill Tracking | Track shipments from suppliers to customers | Real-time visibility |
| Reason | Explanation |
|---|---|
| Monitor supplier deliveries | Know when inventory is arriving to fulfill backorders |
| Update customers | Provide accurate estimated delivery dates |
| Detect delays | Identify shipping issues early |
| Prioritize fulfillment | Know which shipments are arriving first |
| Multiple carriers | Backorders may ship via different carriers |
| No registration needed | Quick access for your team and customers |
| Share tracking | Send tracking links to waiting customers |
| Step | Action |
|---|---|
| 1 | Your supplier ships backordered inventory with tracking number |
| 2 | Go to DreamFulfill at https://dreamfulfill.net |
| 3 | Enter the tracking number provided by your supplier |
| 4 | System automatically detects the carrier (USPS, UPS, FedEx, DHL, 500+ carriers) |
| 5 | View real-time tracking updates including status, location, and estimated delivery |
| 6 | Share the tracking link with customers waiting for their backordered items |
| 7 | No registration needed — check anytime |
| Use Case | How to Use |
|---|---|
| Track supplier inventory shipments | Monitor when backordered inventory is arriving |
| Update customers | Share tracking links with customers waiting for products |
| Multiple backorders | Check multiple supplier shipments at once |
| Detect delays | Spot shipping issues and communicate with customers |
| Prioritize fulfillment | Know which products are arriving first |
| Customer support | Quickly check and share tracking information |
| Practice | Description | Impact |
|---|---|---|
| Be transparent | Communicate honestly about backorder status | Builds trust |
| Set realistic expectations | Provide accurate delivery estimates | Reduces frustration |
| Offer alternatives | Suggest in-stock products | Keeps sale |
| Provide incentives | Discounts, free shipping for waiting | Improves satisfaction |
| Prioritize communication | Regular updates, proactive notifications | Reduces cancellations |
| Track everything | Monitor inventory, suppliers, shipments | Better control |
| Learn from backorders | Analyze causes and improve processes | Reduces future backorders |
| Automate where possible | Reorder points, notifications, tracking | Reduces manual work |
| Have a plan | Document backorder handling procedures | Consistent response |
| Measure and improve | Track KPIs, identify trends | Continuous improvement |
| Step | Action | Decision |
|---|---|---|
| 1 | Backorder is identified | → Customer is notified |
| 2 | Expected delivery date provided | → Customer decides to wait or cancel |
| 3 | If customer cancels | → Process refund, suggest alternatives |
| 4 | If customer waits | → Monitor supplier shipment |
| 5 | Inventory arrives at warehouse | → Prioritize backorder fulfillment |
| 6 | Order is fulfilled | → Send tracking number |
| 7 | Follow up with customer | → Survey satisfaction |
A backorder occurs when a customer places an order for a product that is currently out of stock. The order is accepted and the customer is informed that fulfillment will be delayed until inventory becomes available. Backorders are different from stockouts because there is an expectation of future fulfillment.
The ideal backorder duration is less than 7 days. Studies show that 60% of customers will not wait more than 7 days for a backordered item. If the backorder will exceed 14 days, consider offering alternatives or allowing cancellation.
A backorder means the customer's order is accepted and will be fulfilled when inventory arrives. A stockout means the product is unavailable and no orders are accepted. Backorders are generally better for customer retention than stockouts because you maintain the customer relationship.
Effective backorder management includes: communicating immediately with customers, providing realistic delivery estimates, offering alternatives, providing incentives for waiting, monitoring inventory shipments, and fulfilling backorders as soon as inventory arrives.
Safety Stock = Z × σ × √L, where Z is the desired service level factor (1.65 for 95%), σ is the standard deviation of demand, and L is the lead time in days. This helps prevent stockouts and backorders.
A good backorder rate is under 5%. Rates above 5% indicate that inventory planning needs improvement. Rates above 10% are concerning and may significantly impact customer satisfaction and revenue.
Allowing backorders is generally better than disabling product listings because it maintains customer engagement and prevents lost sales. However, if lead times are very long (more than 2-3 weeks), consider disabling the product or making it clear that it's a pre-order.
Use DreamFulfill (https://dreamfulfill.net) to track shipments from your suppliers to your warehouse. Enter tracking numbers for real-time updates across 500+ carriers. Share tracking links with customers waiting for their backordered items.
Be honest and transparent. Tell them the product is on backorder, provide an estimated delivery date, explain why it happened (e.g., high demand), offer alternatives, and provide an incentive for waiting (e.g., discount, free shipping).
Prevent backorders by maintaining safety stock, using demand forecasting, setting reorder points, diversifying suppliers, monitoring lead times, and using inventory management technology. Track supplier shipments with DreamFulfill to identify delays early.
Backorder inventory — now you have a complete guide to understanding and managing backorders in your supply chain.
| Phase | Task | Status |
|---|---|---|
| Understand | Learn what backorders are and why they happen | ☐ |
| Understand | Identify common causes of backorders | ☐ |
| Understand | Calculate backorder metrics | ☐ |
| Prevent | Set safety stock levels | ☐ |
| Prevent | Implement demand forecasting | ☐ |
| Prevent | Establish reorder points | ☐ |
| Prevent | Diversify suppliers | ☐ |
| Manage | Create communication templates | ☐ |
| Manage | Set up customer notification system | ☐ |
| Manage | Define backorder handling procedures | ☐ |
| Track | Monitor supplier shipments with DreamFulfill | ☐ |
| Track | Update customers on backorder status | ☐ |
| Track | Fulfill backorders when inventory arrives | ☐ |
| Improve | Analyze backorder causes | ☐ |
| Improve | Adjust inventory planning | ☐ |
| Improve | Continuously optimize processes | ☐ |
| Situation | Action | Timeline |
|---|---|---|
| Backorder identified | Notify customer immediately | Within 1 hour |
| Expected delivery date known | Provide date to customer | Within 24 hours |
| Customer cancels | Process refund, offer alternative | Same day |
| Customer waits | Provide regular updates | Weekly |
| Inventory arrives | Fulfill backorder immediately | Same day |
| Order ships | Send tracking number | Within 1 hour |
| Order delivered | Follow up with customer | Within 24 hours |
Optimize your backorder inventory management today. Use DreamFulfill for free, real-time tracking of all your supplier shipments. No registration required. No personal data collected. Track your shipments from USPS, UPS, FedEx, DHL, and 500+ carriers. Keep your customers informed and satisfied.