Backorder: Definition, Causes, Example, Vs. Out-of-Stock

A backorder refers to a customer order for a product that cannot be fulfilled immediately because the item is temporarily unavailable in the seller’s inventory. Unlike an out-of-stock situation, where the product might not be available at all or for an indefinite period, a backorder implies that the item is expected to be restocked soon, and the order will be fulfilled once the inventory is replenished. Essentially, when a product is on backorder, the business accepts the order with the understanding that delivery will be delayed until stock is available.

Backordering is a common practice in industries where demand fluctuates or supply chains experience occasional disruptions. It allows businesses to maintain customer relationships by securing sales even when inventory is depleted, rather than turning customers away entirely. For example, a retailer might inform a customer that a popular item is on backorder and provide an estimated shipping date, giving the customer the option to wait or cancel the order.

From a technical standpoint, backorders are tracked separately in inventory management systems. When an item is backordered, it is recorded as a pending order, and businesses often prioritize fulfilling these orders as soon as new stock arrives. This process requires careful coordination between suppliers, warehouses, and customer service teams to ensure transparency and satisfaction.

Causes of Backorders

Backorders can arise from a variety of factors, ranging from supply chain inefficiencies to unexpected spikes in demand. Below are some of the most common causes:

1. Unexpected Demand Surges
   One of the primary reasons for backorders is a sudden increase in customer demand that exceeds forecasts. This can happen due to seasonal trends (e.g., holiday shopping), viral marketing campaigns, or external events (e.g., a celebrity endorsement). For instance, if a new gadget gains unexpected popularity online, retailers might sell through their stock faster than they can replenish it, leading to backorders.
2. Supply Chain Disruptions
   Delays or interruptions in the supply chain—such as manufacturing slowdowns, shipping delays, or raw material shortages—can prevent businesses from restocking inventory in time. Natural disasters, geopolitical tensions, or labor strikes can exacerbate these issues, leaving companies unable to meet demand and resulting in backorders.
3. Production Delays
   For businesses that manufacture their own products, delays in production can lead to backorders. This might occur due to equipment malfunctions, quality control issues, or bottlenecks in the production process. If a company underestimates the time needed to produce a batch of goods, it may accept orders it cannot immediately fulfill.
4. Inventory Mismanagement
   Poor inventory planning or inaccurate demand forecasting can also cause backorders. If a business fails to maintain adequate safety stock (extra inventory to cover unexpected demand) or misjudges reorder points, it risks running out of products before new shipments arrive.
5. Supplier Issues
   Dependence on third-party suppliers introduces another layer of risk. If a supplier fails to deliver goods on time—due to their own production issues, financial troubles, or logistical challenges—the retailer or manufacturer may face backorders.
6. Intentional Backordering
   In some cases, businesses intentionally allow backorders as part of their strategy. For example, a company launching a limited-edition product might accept pre-orders or backorders to gauge demand before committing to a full production run. This approach minimizes overproduction while ensuring they capture as many sales as possible.

Example of a Backorder Scenario

To illustrate how backorders work in practice, consider the following example involving an online electronics retailer:

Imagine a company called TechTrend Innovations sells a popular wireless earbud model, the “SoundWave Pro.” Due to a glowing review from a well-known tech influencer in March 2025, demand for the SoundWave Pro skyrockets. TechTrend had 1,000 units in stock at the beginning of the month, but within a week, they receive orders for 1,500 units. The remaining 500 orders cannot be fulfilled immediately because their next shipment from the manufacturer isn’t scheduled to arrive until April 15, 2025.

Rather than rejecting the extra 500 orders, TechTrend places them on backorder. They update their website to inform customers that the SoundWave Pro is “temporarily unavailable” but can still be ordered with an estimated shipping date of mid-April. Customers are given the choice to proceed with the backorder or cancel their purchase. Meanwhile, TechTrend notifies its supplier of the increased demand, requesting an expedited shipment to minimize delays.

By April 15, the new stock arrives, and TechTrend fulfills the 500 backordered units, shipping them out to customers with an apology for the delay and a small discount code as a gesture of goodwill. This approach allows TechTrend to retain sales and customer loyalty despite the temporary inventory shortage.

This example highlights how backorders can serve as a bridge between supply and demand, enabling businesses to adapt to unexpected situations while keeping customers informed and engaged.

Backorder vs. Out-of-Stock: A Detailed Comparison

While backorders and out-of-stock situations both involve unavailable inventory, they differ significantly in terms of implications, management, and customer experience. Below is a detailed comparison:

1. Definition and Availability
   • Backorder: The product is temporarily unavailable, but the business expects to restock it soon and accepts orders for future fulfillment.
   • Out-of-Stock: The product is unavailable, and there’s no guarantee or timeline for when (or if) it will be restocked. Orders are typically not accepted.
2. Customer Options
   • Backorder: Customers can place an order and wait for delivery once the item is back in stock. They are usually given an estimated delivery date.
   • Out-of-Stock: Customers cannot place an order and must either wait for an unspecified restock, choose an alternative product, or shop elsewhere.
3. Business Strategy
   • Backorder: Reflects a proactive approach where the business secures sales and manages customer expectations, even during shortages. It’s often used to maintain revenue and customer relationships.
   • Out-of-Stock: Indicates a reactive or unplanned situation where the business has run out of stock without a clear restocking plan, potentially losing sales and customers.
4. Inventory Management
   • Backorder: Requires tracking pending orders and coordinating with suppliers to ensure timely restocking. Backordered items are logged as future commitments.
   • Out-of-Stock: No orders are taken, so there’s less immediate pressure to restock, though prolonged out-of-stock status can harm reputation and sales.
5. Customer Perception
   • Backorder: Can frustrate customers due to delays, but transparency (e.g., clear communication about shipping timelines) can mitigate dissatisfaction. Some customers may even see it as a sign of high demand and exclusivity.
   • Out-of-Stock: Often leads to greater frustration, as customers have no assurance of availability and may feel compelled to abandon the purchase entirely.
6. Examples in Context
   • Backorder: A furniture store accepts orders for a popular sofa that’s out of stock but expected to arrive in two weeks.
   • Out-of-Stock: A grocery store runs out of a specific brand of cereal with no restock date provided, forcing customers to buy a substitute or shop elsewhere.
7. Financial Impact
   • Backorder: Preserves revenue by locking in sales, though it may increase costs (e.g., expedited shipping or customer compensation).
   • Out-of-Stock: Risks losing sales entirely, especially if customers turn to competitors.

Implications for Businesses and Customers

For businesses, managing backorders effectively requires a delicate balance. On one hand, accepting backorders can maximize sales and demonstrate commitment to meeting customer needs. On the other hand, prolonged delays or poor communication can damage trust and drive customers to competitors. Companies must invest in robust inventory systems, reliable supplier relationships, and clear customer communication to handle backorders successfully.

For customers, backorders present a trade-off between convenience and desire. If the product is unique or highly coveted, they may be willing to wait. However, if alternatives are readily available elsewhere, the incentive to wait diminishes. Businesses that offer incentives—like discounts or free shipping—can improve the backorder experience and retain loyalty.

Conclusion

Backorders are a critical concept in the realm of inventory and supply chain management, offering a lifeline for businesses facing temporary shortages while testing their ability to manage customer expectations. Caused by factors like demand surges, supply chain hiccups, or strategic decisions, backorders differ markedly from out-of-stock scenarios in their proactive nature and potential to preserve sales. As illustrated in the TechTrend Innovations example, backorders can be a powerful tool when handled with transparency and efficiency.