Can you accept an order for goods that are not currently available in stock? It turns out you can. Provided that you are sure that the supplier (manufacturer or broker) will deliver them to you fast enough that you can get them to the end customer on time. This kind of order fulfilment model is called backordering. It requires very efficient logistics processes, including, above all, packing planning.
When the summer heat hits, everyone buys electric fans. It may happen (and often does) that the stock of the equipment runs out. However, it is known that stocks can be quickly replenished, and the increase in demand is seasonal. So, is “product unavailable” the only answer here and you have to stop selling?
Backorders – benefits and risks
In the situation above with electric fans, ceasing sales until the stock is replenished is not the only option. Although the goods are not currently available, you may allow your customers to place orders and process them. One of the options is booking: the customers get information that their orders will be processed as soon as the ordered items become available again. In the second option you do not involve the customer in the nuances of warehouse and delivery management. You only inform them that the order may be fulfilled a little later.
The latter case is selling an item on backorder, that is allowing the customer to buy an item which is currently unavailable, to be delivered when it’s back in stock. Despite the fact that the items are not currently available in stock, sales continue and orders are processed routinely. The benefits are obvious:
- the continuity of sales – it is necessary for the proper functioning of the company or store, ensures stability of revenues, and at the same time provides a positive image to customers,
- increase in turnover – if you decide to sell an item at a time of increased demand, you may see a rapid increase in turnover: even if the increase lasts for a very short time, it may still generate a huge number of orders – sometimes sales recorded in one month or in a quarter may determine the company’s annual result,
- optimisation of warehouse costs – you do not incur the storage costs of ordered goods as the goods are almost immediately, after sorting and completing orders, sent to customers.
However, backordering is not just about benefits. There are also risks associated with the use of this sales model. The biggest challenge is to arrange packing and dispatch of orders in order to meet delivery dates. In the long run, any delays in delivery may result in a decrease in turnover, loss of credibility and a very likely increase in the number of returns, as late-delivery goods may turn out to be useless and are returned more often.
Key steps in the timely execution of backorder
The key for effective management of backorders is the preparation of the shipment of physically unavailable goods: a dry run of packing parcels, containers and pallets with the use of loading optimization software. Thanks to this, before the goods are delivered to the warehouse, you may prepare appropriate containers for packing orders, choose the optimal means of transport and consequently create a precise delivery schedule. Packing planning algorithms allow you to solve some specific problems associated with backorder fulfilment in advance, that is, to prepare solutions to problems that may arise. A good example is a case with several orders from one customer for items that are not currently in stock and the question is whether to ship them as separate orders or accumulate all ordered goods and deliver them as one shipment? The first option allows you to shorten the fulfilment of the customer’s individual orders. The second one seems to be more advantageous for the seller, as it reduces the shipping costs. However, using packing planning algorithms may prove that it might also be more advantageous for the seller to send the separately ordered goods individually. For example, it may turn out that shipping all the ordered items together means going beyond the parameters of a sortable package. As a result, you may bear the cost of a surcharge for an oversized shipment. If you use your own fleet, it may turn out that a one-time delivery of all ordered goods is unprofitable as there is no appropriate equipment (e.g. means of transport) and you have to buy services from third party companies.
There are many similar situations. It is best to be ready for them before they occur – have a detailed plan in case of an emergency. To prepare one, you have to execute a large number of planning operations of goods vs. cargo space – in a warehouse, in vehicle cargo areas, in collective packaging. Packing planning algorithms will help you with these tedious calculations – you will be able to put more energy and creativity into managing the sales process. Thanks to the algorithms and their always reliable and instant results, you can focus on your core business tasks.