Backorder Management in an Internet World

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One great advantage E-tailers have over the traditional catalog merchant is in the area of inventory management. Specifically, the e-commerce merchant can manage the presentation of product shown on his/her site to mirror the available inventory. This competitive advantage should translate to a much lower or hopefully, negligible amount of backorders.

The competitive advantage of not having to commit a picture, and thus inventory, to print 6 to 7 weeks prior to a mailing date cannot be overstated. The technology of e-commerce makes it incumbent upon the inventory manager to develop a proactive stance to ensure that the presentation of product is tied to availability of that product.

However, even in the best of circumstances, backorders will occur for the e-tailer. This will almost certainly happen if customer response rises substantially above your marketing department's projections. Without committing an enormous amount of cash to building up inventory levels to cover every contingency, the e-commerce merchant and inventory manager must rely upon their best estimates on anticipated customer response and react accordingly.

When backorders are created, how should the e-tailer react? The same way the traditional cataloger does in the direct mail arena; a direct message sent to the customer briefly explaining the issue, ("due to exceedingly high demand, we are unable to fill your order at this time", etc.). This communication to the customer should include the appropriate apology wording and most importantly, an expected date for the backorder to be filled! This is where the inventory manager and merchant must continue to work as the leaders of the customer service team. The dates for backorder fulfillment must be realistic. The last thing a customer will tolerate is a continuous dragging out of dates for their order to be shipped. Even if the date for vendor delivery is relatively long, be honest with the customer. They may end up canceling based upon the promise date, but if you ship them later than originally promised the item will almost certainly come back in the next UPS or USPS delivery.

Another technique that can be used when communicating with the customer is to offer incentives not to cancel their order. These incentives can be a percent off or dollar off offer on the current order or, as is the most common practice in direct marketing, on future orders. The key here is for the e-tailer to do his homework on what kind of offer is economically sound from the company's position. They must be sure to add in the additional cost of shipping the backorder to the cost of the markdown. There are several documented cases where companies were actually losing money on each backorder shipped when the incentives and cost of markdowns were computed accurately!

Another caveat when managing backorders is to offer the customer the option to speak with a customer representative. Even for customers who are very computer and Internet literate, there can be no substitute for a real voice behind the web site. The message to the customer will be the same, but the manner in which it is conveyed may be difference between maintaining that customer or losing them to your competition.