Inventory Management: How to Minimise Your Backorders

Inventory Management: How to Minimise Your Backorders

How to Minimise Your Backorders

When a customer places an order for a product that's out of stock, it is backordered. While some customers will wait for the backordered item, many will not. Regular stock-outs can make customers feel unsatisfied with the shopping experience and as a result, they may find alternative suppliers that suit them better.

It's clear that backorders can damage your business and possibly your reputation if it's a recurring problem. However, you will always have to live with a certain amount of it because eliminating it completely by overstocking is too costly. In fact, excessive overstocking can put you out of business faster than under stocking.

You will have to decide on an acceptable rate of stock outs and adjust your inventory accordingly. For example, you might add safety stock to your popular products while reducing or eliminating safety stock for your low turnover items, especially when you have many different types of them.

How to Reduce Backorders without Resorting to Excessive Safety Stock

Choose Your Suppliers Well

One way of reducing the need for backordering without adding excessive safety stock is carefully choosing your suppliers. You want reliable suppliers with the shortest possible lead times. Reliability is important because you don't want their unreliability to cause stock outs, and you don't want to spend money over stocking against their unreliability.

Short lead times allow you to keep less inventory by making smaller but more frequent orders. Another advantage of short lead times is that they reduce the waiting time of your backorders. For example, if you have a vendor with a lead-time of a couple of days, then a back order that requires a customer to wait an extra two days won't matter to most people.

Get an Inventory Management System

Inventory management software tracks items going into your inventory and items going out. It keeps tabs (in real-time) on exactly how much of each product you have. This means you can state up front whether an item is out of stock either on your ordering page or on the phone when taking customer orders. This leaves a better impression than taking an order and then following it up later with an email stating that the item is on back order.

An inventory management system can also auto-schedule your inventory reorders. You can either set it to give you a reorder notification at the appropriate time or automatically place an order with your suppliers. Set the reorder point so that you receive the product before you run out of stock.

If you need help minimising your backorders with the help of an inventory management system, please feel free to contact us.

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