Backorders will invite lost revenue and unnecessary hard costs stemming from inventory mismanagement.
While it may be tricky to balance inventory availability with cash flow, simply falling into a backorder situation considerably increases the cost of doing business. Moderately high on hand inventory fulfillment levels that keep backordered items at a minimum improve your profitability margins. Inventory management and forecasting strategies may just be the solution to prevent a backorders.
The magic lays in finding the balance between the cost of being in backorder and the cost of being over stocked. Our warehouse management system (WMS) and our on-line Fulfillment reports will help you administer your inventory management, demonstrating your highest inventory movers and your slowest movers. Balance your stock with demand and account for products delivery times. Focus on your top 20% products and prevent a back order point.
How a Backorder affects your bottom line:
- Customer Service – customers call to inquire about their backordered items result in the cost of the Customer Service agents spending time on the phone, responding to emails, or on live chat, as well as the telecommunications costs.
- Order Cancellations – delays in delivery due to backorders may cause customers to cancel their order. The best case scenario is for the customer to notify you before you’ve had the chance to fill the backorder, however this will mean increased Customer Service interaction as mentioned above.
- Backorder Notification Services – you may be sending emails, letters or post cards and such to alert your customers of the delayed merchandise, resulting in increased hard costs.
- Increased Returns – customers may have never notified you of their desire to cancel the late backorder, but they may refuse it once it is finally delivered. This order cancellation becomes especially costly because now it means the merchandise is shipped back to you, which may result in increased shipping fees depending on your shipping program, but especially it means receiving the return, inspecting, issuing a credit, restocking back into inventory – all of which increase your total order fulfillment cost.
- Expedited freight – incurring increased shipping costs to both the warehouse from the manufacturing facility, as well to the customer and\or distribution center. In an attempt to keep the customer happy, you may be more likely to rush backorders at an increased shipping cost.
- Rushed pick pack services – You may request your Fulfillment Services partner to expedite your backorders, which may result in an overtime condition for which there may be additional costs.
- Bad references and lost future customers – It’s been proven that unhappy customers are almost fifteen times more likely to complain than are happy customers likely to provide a positive reference. In today’s lighting fast social network plugged-in-world, this can translate into very poor company and product ratings and lost customers and future revenue.
Additional Costs and lost customers will result in increasing your prospecting activities in order to replenish your customer base, and cover your increased costs of service.
All of these costs mean lost margin opportunities, in some cases resulting in thousands of dollars! Balanced inventory management thus becomes a critical aspect of Fulfillment services. Improve your Backorder inventory levels with ShipWizard. Utilize our online reports and low level triggers to prevent backorders.
Several studies point to a cost of a backordered unit to run close to a $10 range – multiplied by the total number of orders a year, this can equate to thousands of lost revenue. When looking at continuity or auto-ship programs this number is further amplified since it also represents lost repeat business from that customer.
Improve your backordered inventory levels with ShipWizard. At ShipWizard we understand the potential loss of business a back order position may represent. Keep your backorder conditions at a minimum improve your profitability margins, benefit from our Warehouse Management System and maximize your Fulfillment program profits.