Backorder
Definition
A customer order, or portion of one, accepted for fulfillment despite the item being out of stock, to be shipped when inventory becomes available. Managing backorders means tracking, prioritizing, and clearing this unmet demand.
In Practice
A backorder converts a stockout into a delayed sale instead of a lost one, which is why backorder-tolerant businesses, industrial parts, B2B distribution, can run leaner buffers than retail, where shoppers simply substitute. The backorder queue is unmet demand with a name and an order number attached, and it must be netted out of inventory position so replenishment sees the deficit.
Managing the queue well is an operational craft: communicating realistic recovery dates, deciding whether inbound stock clears backorders first-in-first-out or by customer priority, and choosing when to split-ship versus consolidate. Persistent backorders on the same SKUs are a flashing signal that its safety stock or lead time assumptions are wrong.
Example: after a supplier fire, a distributor accumulates 5,000 units of backorders on one SKU. The planner secures a partial shipment of 2,000, clears contractual accounts first per the allocation policy, and publishes a dated recovery schedule that keeps cancellations below 5 percent.
Related Calculators
Related Terms
The cost incurred when demand cannot be met from available inventory, including lost sales, expediting, penalties, and damaged customer relationships. It is the counterweight to holding cost in service level decisions.
AllocationThe process of assigning available inventory to competing demands, such as customer orders, channels, or locations, especially when supply is insufficient to cover everything. It decides who gets stock when there is not enough for everyone.
Fill RateThe percentage of customer demand satisfied immediately from available stock, measured by units, lines, or complete orders. It captures how much demand you actually fulfilled, not just whether a stockout occurred.
Inventory PositionThe total stock available to meet future demand, calculated as on-hand inventory plus on-order inventory minus backorders and committed allocations. It is the number replenishment decisions should be based on.