How to Manage Back Orders and High Demand

Every company dreams of high demand for their goods or services. But, sometimes, customer demand outpaces the supply and results in back orders. Back orders are not usually something a company wants to be associated with its name. Buyers should know they can get their orders filled on time and not have to turn to another supplier to meet their needs.

Fortunately, companies can prepare for high-demand seasons and minimize or eliminate back orders. In this post, we’ll show you the best ways to manage back orders to keep your customers happy and revenue flowing.

Jump to Sections:

• What Are Back Orders?
• What is Back-Ordering
• What Are the Effects of Back Orders?
• How to Anticipate Periods of High Demand
• Things to Do to Eliminate Back Orders
• Benefits of Buying in Bulk
• Benefits of Bulk Storage Solutions
• Equipment That Can Help
• Contact Cherry’s Industrial Equipment Today for Custom Solutions

What Are Back Orders?

Back orders are orders for products that cannot be presently filled because there’s insufficient supply to meet the demand. It usually means that a company, such as a distributor, manufacturer or retailer, ran out of stock. The products might not be available in the company’s inventory because they’re still in production or need to be manufactured. Causes of back orders include:

• Unusually high demand: Sometimes, companies are caught off guard or do not prepare properly for periods of high demand. They might experience a drastic increase in sales due to a holiday or natural disaster, for example.
• Low safety stock inventory: Retailers, manufacturers, distributors and wholesalers often keep safety stock, which is inventory reserved for unpredictable events. Well-managed safety stock can prevent back orders, but sometimes the amount of inventory needed is miscalculated.
• Supplier issues: In a global economy, occasional supplier issues are inevitable. Items might not get shipped on time due to natural events, labor strikes or compliance issues. Any of these events could potentially lead to back orders.

What Is Back-Ordering?

Back-ordering is when companies let customers place orders for products that are out of stock. The goal is to fulfill customers’ orders as soon as the items are available. Businesses might allow back-ordering to free up inventory space.

The problem with back-ordering is customers may not keep their orders as they wait. Canceled orders can lead to overstocked inventory. Back-ordering is also not attractive to buyers, who would rather have the items they want right away.

What Are the Effects of Back Orders?

Back orders impact every link in the supply chain. Imagine a retailer sells out of a popular product and reorders the item from the distributor. If the distributor doesn’t have enough of the product in their inventory, they’ll need to go to the manufacturer. The manufacturer might need to produce more of the in-demand item to fill the order. All of these steps take time and, ultimately, keep customers waiting. Overall, the effects of back orders include:

• Impacting customer relationships: Customers expect items to be in stock. If they often have to back-order products or find items unavailable, they’ll likely look elsewhere for business. This could impact your relationship with large retailers who want reliability. On the other hand, if you keep items well-stocked, you’ll keep lucrative buyers satisfied and generate revenue.
• Decreasing sales: Unless you allow customers to place orders on out-of-stock items, you can’t sell what you don’t have. Every year, companies lose billions of dollars in sales due to stockouts. For example, according to IHL Group, retailers missed out on $948 billion due to out-of-stock items in 2018.
• Increasing customer service costs: Companies with back-orders need to invest in customer service to keep buyers satisfied despite out-of-stock items. They might offer customers incentives to prevent order cancellations or encourage buyers to buy from them again. Companies may also need to invest in marketing efforts to repair a damaged reputation due to back orders.

How to Anticipate Periods of High Demand

Whether you need to prepare your warehouse for the holidays or want to be ready to serve customers during a crisis, here’s how to manage periods of high demand:

• Analyze the past: Look at past sales data to identify trends and predict customer demand for certain times of the year. For example, if you work in the food manufacturing industry, you might review the sale of seasonal products over the past two years to predict the flavors and package sizes your customers will demand in the future.
• Research the market: Think about popular products and market trends and understand what your customers currently want and need. Use your findings to help you predict and prepare for busy seasons.
• Make room: Consider moving inventory that isn’t selling out of your warehouse to make room for high-demand products. Products that haven’t moved in 90 days are considered slow-moving inventory and are taking up valuable space that you could use for fast-selling items.
• Ensure shipping and receiving efficiency: Ensure employees have the training and equipment needed to handle orders efficiently and safely. Also, ensure employees know how to handle changes in demand and warehouse layout. If needed, build up your teams before peak seasons by hiring temporary staff through temp services or job fairs.
• Review your layout: Walk through your facility and make sure every department is organized and arranged to handle more inventory. Designate specific zones for high-demand products or move in-demand items closer to packing stations to accelerate picking.
• Collect data: You need to start preparing for next year’s holiday season by collecting data. Have a system in place to monitor key inventory metrics such as inventory-to-sales ratio and order lead time. You can use this data to identify issues and improve operations for the next seasonal rush.
• Prepare your customer service team: More orders can sometimes lead to a greater number of returns, exchanges or customer concerns. Have a plan on handling increased communication with customers during peak seasons — inside and outside the warehouse.
• Perform maintenance: Ensure the warehouse machinery, material handling equipment, tools and storage units are in excellent condition, and make any repairs or replace equipment as needed. This will help you keep productivity levels high and customer complaints low.

Things to Do to Eliminate Back Orders

Back orders can be problematic, but there are ways to manage periods of high demand before things get out of control. Here’s how to reduce the effects of back orders or eliminate them:

• Identify the cause: It’s hard to solve a problem if you don’t know what’s causing the issue, so take time to consider what went wrong. For example, does your supplier often run late? Or do you have inaccurate sales data from the past, making it challenging to predict future sales? If you understand the problem, you can come up with a solution.
• Build relationships with your suppliers: Get to know all of your suppliers so you can quickly respond to a surge in demand. It’s essential to keep communication open with suppliers or manufacturers if they face any issue, such as a weather event or operational failure. By knowing what’s going on at the top of the supply chain, you can plan accordingly.
• Implement cross-docking: Cross-docking is when you receive a shipment and immediately start filling orders, rather than putting items away. In other words, you’re moving goods from receiving to shipping and reducing the steps in between. By implementing cross-docking, you can fill back orders faster, but make sure you still have a way to scan and track inventory accurately.
• Share inventory data: Communicate with retailers or other downstream partners about inventory and reduce surprises. Let them know what you have in stock and encourage them to share the same information.
• Use data to place orders: Use data, rather than instinct, to place orders with supply chain partners. It’s best to use a mathematical approach, such as a safety stock formula, to help eliminate stockouts and back orders.
• Check your warehouse management system (WMS): Your WMS might not always be accurate, and inaccurate inventory data can lead to back orders. Sometimes a WMS doesn’t coordinate its inventory with outside data sources, such as point-of-sale systems. To prevent WMS discrepancies, perform a physical inventory count and compare it to your WMS data. Continue to count inventory until you find and fix the error. You should have at least a 97% inventory accuracy rate, though 100% is ideal.
• Invest in employee training: Make sure employees understand how your warehouse works and how to use your WMS. By investing in proper training, you can reduce costly human errors and back orders.

If you can’t eliminate back orders, it’s critical to be honest with buyers. Make sure your customers understand that certain items are only available for back orders, and give them an estimated delivery date. Plan to keep them updated on the status of their order, and offer options if you can. For example, if a buyer orders multiple items, offer to send a partial delivery to help them meet customers’ needs as they wait for back-ordered products.

Benefits of Buying in Bulk

Another way to prevent back orders is to buy items in bulk and build up your anticipation inventory. Anticipation inventory refers to excess stock companies keep on hand as they anticipate a high demand for their products. Companies might also buy anticipation inventory if they expect a price increase or shortage.

You can also buy in bulk to create a safety stock supply. As mentioned earlier, safety stock refers to extra inventory. Businesses keep safety stock in case the demand increases due to an unexpected event.

Besides building your anticipation inventory and preparing for high-demand seasons, other benefits of buying in bulk include being able to:

• Meet the demand: By stocking up on in-demand items, you won’t have to worry about running out on popular products or accumulating back orders. You can deliver items when buyers need them, even as they soar off the shelves.
• Keep your customers: If you can fill orders even when the demand unexpectedly skyrockets, you’ll impress buyers and make your customers happy. Happy customers equal higher profits, improved relationships and greater loyalty.
• Manage back orders better: Even if you do not have enough inventory on hand to fill all of your back orders, your excess inventory can at least reduce the number of back orders you have. This will help you keep back orders from multiplying and prevent long delays for customers.
• Be consistent: Buying in bulk might be the right move for items that consistently sell well, and if it’s difficult to predict the demand. With items that sell steadily, buying in bulk is a low-risk option.

Benefits of Bulk Storage Solutions

Bulking up your inventory doesn’t mean you have to give up too much floor space. You can choose storage solutions for back orders or bulk items that efficiently maximize the use of space. The right storage solutions offer benefits such as:

• Making it easier for employees to access items safely.
• Reducing product damage.
• Helping your warehouse stay organized.
• Freeing up space on other shelves.

Lastly, storage solutions like pallet racks allow you to utilize vertical space in your warehouse. You can stack and store bulk items nearly to the ceiling, allowing you to save floor space as you keep your inventory well-stocked.

Equipment That Can Help

During peak season, you and your employees face bigger workloads and increased pressure to meet productivity requirements and prevent back orders. As you get ready for the rush, consider using material handling equipment to help workers pick up the pace. At Cherry’s Industrial Equipment, we offer equipment that can improve productivity while enhancing worker safety. Our solutions include:

• Pallet inverters: Our pallet inverters rotate 180 degrees and eliminate the need to restock pallets manually. Pallet inverters have a range of applications, such as transferring loads from pallets to slip sheets and allowing easy access to damaged goods on the bottom of pallet loads. We offer several types of pallet inverters to meet your needs, including single-clamp models and custom-made pallet turners.
• Pallet dispensers: Our industrial pallet dispensers keep workers from having to handle pallets manually. These automatic pallet dispensers help reduce the risk of back injuries while increasing employee satisfaction. You can choose from pallet, sheet or container dispensers, and give your warehouse an efficiency boost.
• Tippers and spenders: Our tippers and upenders make it safer to handle heavy loads like steel coils or paper rolls. With our tippers and upenders, employees can easily rotate oversized loads within a 90-degree radius and save their backs and forklifts from damage.
• Lift tables: Lift tables raise pallets to ideal heights, so employees can work with loads without having to bend, reach or strain their backs. You’ll find several types of lift tables to choose from, including stainless steel lift tables for the food industry and floor level lift tables — perfect for loading and unloading with a pallet jack.
• Stretch wrappers: Our easy-to-use stretch wrappers automatically wrap pallets to stabilize products and prevent damage. With a stretch wrapper from Cherry’s, you can enhance productivity, reduce film consumption and create a safer workplace.

Contact Cherry’s Industrial Equipment Today for Custom Solutions

Understanding and managing back orders need to be a priority for companies that focus on customer satisfaction. You can prepare for periods of high-demand and enjoy your company’s success at the same time. At Cherry’s Industrial Equipment, we’ll help you get there. To learn more about our innovative material handling equipment or custom solutions, please contact us today. We can’t wait to exceed your expectations.