How to prevent inventory backlog
Imagine you’re shopping for a new shirt at your favorite store. You find the perfect one, but when you head to the checkout, the salesperson tells you that they’re currently out of stock in your size. However, they assure you that they can order it for you and have it ready in two weeks. Even though you’ve paid for the shirt, it’s not immediately available—you’re now waiting for the store to fulfill your order.
This situation is similar to an inventory backlog. The product you bought exists, but it’s not ready for you because it’s already committed to you and potentially others who are also waiting. In this blogpost, we go through everything you need to know about inventory backlogs. Let’s dive in!
What is an inventory backlog?
An inventory backlog refers to products that have been ordered by customers but haven’t yet been shipped. Essentially, these are the items in your warehouse that are spoken for, but not yet delivered. This means the inventory is present but temporarily unavailable because it’s reserved for pending orders.
As you receive new orders, your inventory backlog increases; it decreases as orders are fulfilled and shipped out. For example, if you receive 100 orders in a day but don’t fulfill any by the end of the day, your backlog consists of 100 units. If you fulfill 60 of those orders the next day, your backlog reduces to 40 units. Furthermore, inventory backlogs are a normal part of order management, but when they become excessive, they can create significant operational challenges.
Causes of inventory backlogs
Understanding the root causes of inventory backlogs can help you manage them more effectively. Here are some of the common culprits:
Preorders
Preorders can generate excitement and secure early sales, especially for new or limited-edition products. However, they can also lead to inventory backlogs. When customers place preorders, they’re reserving stock that may not yet be available. If there’s a delay in receiving this stock from your supplier or manufacturer, you can end up with a backlog of unfulfilled orders, creating bottlenecks in your fulfillment process.
Demand surges
A sudden spike in demand, whether due to a viral marketing campaign, a seasonal rush, or a surprise endorsement, can overwhelm your fulfillment capacity. If orders come in faster than your team can handle, or if your inventory runs out, backlogs are almost inevitable. This can cause delays in fulfilling existing orders as you rush to restock and manage the influx.
Supply chain disruptions
Your supply chain is the backbone of your inventory management, but it’s also vulnerable to disruptions. Issues like production delays, transportation problems, natural disasters, or political instability can slow down the flow of goods from manufacturers to your warehouse. These delays can lead to inventory shortages, causing backlogs as orders accumulate faster than they can be fulfilled.
Internal challenges
Sometimes the issues aren’t external but internal. Operational disruptions such as equipment failures, staffing shortages, or inefficiencies in your processes can slow down order fulfillment. For instance, if your packing machines break down or if there’s an error in your inventory count, it can throw off your entire workflow, leading to an increased backlog as orders wait to be processed.
Inventory tracking errors
Accurate inventory tracking is crucial for smooth operations, but errors can and do happen. If your inventory management system doesn’t update in real-time as orders are picked and packed, you might overestimate your available stock. This can lead to situations where you sell products that aren’t available, increasing your backlog and frustrating customers who face unexpected delays.
Inaccurate forecasting
Forecasting demand is a critical aspect of inventory management, and getting it wrong can have serious consequences. If you underestimate demand, you might run out of stock sooner than expected, leading to a backlog as you struggle to fulfill orders. Conversely, overestimating demand can leave you with excess inventory, tying up resources and leading to inefficiencies. Both scenarios disrupt the balance of supply and demand, contributing to inventory backlogs.
Implications for eCommerce businesses
While an inventory backlog can sometimes indicate strong demand, it becomes problematic when it spirals out of control. Excessive backlogs can have several negative impacts on your business:
- Lower customer satisfaction: Delays in fulfilling orders lead to longer customer wait times. In today’s fast-paced eCommerce environment, this can result in dissatisfied customers who may take their business elsewhere. Shipment delays also hurt your reputation and overall customer experience.
- Higher costs: The longer inventory sits in your warehouse without being shipped, the higher your holding costs. Additionally, prolonged backlogs can increase labor costs as your team spends more time managing and processing delayed orders. There’s also a risk of costly errors like overselling, which can lead to stockouts and damaged customer relationships.
- Slower growth: A large backlog can slow down your entire operation, making it difficult to scale and grow your business. When inventory gets stuck in limbo, your brand can’t recoup its investment as quickly. Slowed supply chain processes and delayed customer deliveries make it harder to maintain momentum and achieve growth targets.
Strategies for managing inventory backlog
Managing your inventory backlog effectively is crucial for maintaining smooth operations and keeping customers happy. Here are some strategies to help you stay on top of your inventory:
Adopt a robust inventory management system
The most effective way to prevent an excessive inventory backlog is to optimize your inventory management process. Inaccurate stock counts and poor demand forecasting are some of the leading causes of large backlogs. Implementing a strong inventory management system gives you real-time visibility into your stock levels, allowing you to forecast demand accurately, time replenishment effectively, and prevent issues like stockouts and surplus inventory.
Enhance supply chain communication
Inventory plays a critical role in your supply chain, so minimizing backlog impact requires transparency and communication across all functions. Maintain clear communication with suppliers regarding inventory levels and potential disruptions. This allows you to plan for shortages and keep customers informed about order statuses. Proactively updating customers about their delivery expectations can also help manage their satisfaction even in the face of delays.
Partner with a fulfillment provider
Outsourcing logistics to a professional fulfillment partner can significantly reduce your inventory backlog. These experts handle everything from storage to shipping, helping you streamline operations, improve efficiency, and get orders out the door faster. With a fulfillment partner, you can focus on other aspects of your business while they manage the complexities of inventory management.
Preventing backlogs with Prime Penguin
To further prevent inventory backlogs, Prime Penguin’s Inventory Planner is an excellent tool. It allows you to accurately forecast demand, optimize stock levels, and plan replenishments so you always have the right amount of inventory on hand. This proactive approach reduces the risk of running out of stock and accumulating backlogs.
Moreover, Prime Penguin offers the added advantage of strategic warehousing and intelligent order routing. By storing your goods in multiple warehouses located near key customer areas, you can minimize shipping times and distribute the fulfillment workload more evenly. This strategy not only speeds up order processing but also reduces the likelihood of backlogs by ensuring that no single warehouse becomes overwhelmed during peak periods.
Prime Penguin’s powerful order routing system automatically directs orders to the most suitable warehouse based on inventory availability, customer location, and shipping costs. This smart system ensures that your orders are fulfilled efficiently, reducing the chances of delays and helping you maintain high customer satisfaction.
Additionally, Prime Penguin users can reserve stock at your warehouse.
A “stock reservation” in Prime Penguin allows you to choose certain products and set a specific amount of them to be held back from your sales channels. You can also set an optional end date for when the reservation will expire. This way, you can control how much stock is available for sale while keeping a reserve in your warehouse.
Conclusion
Effectively managing your inventory backlog is crucial for maintaining customer satisfaction, controlling costs, and driving business growth. By understanding the causes of backlogs and implementing strategies like robust inventory management, improved supply chain communication, and partnering with fulfillment experts, you can keep your backlog under control.
Additionally, leveraging tools like Prime Penguin’s Inventory Planner and our strategic warehousing solutions can help you prevent backlogs altogether, ensuring your ecommerce operations run smoothly and your customers receive their orders promptly.
Would you like to speak to our team about how to prevent inventory backlog for your business? Book a meeting today!
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Max Ericsson
Technical Account Manager