What is Backorder Rate?
Percentage of orders that cannot be fulfilled immediately due to stock unavailability.
How do we calculate Backorder Rate?
(Total Backorders / Total Orders) * 100 where Total backorders is the distinct count of all orders that cannot be fulfilled due to unavailability of inventory.
What is the business impact of Backorder Rate?
- High Backorder Rate hampers the overall customer experience
- It may lead to customer churn and lost sales
- Backorders may also cause order cancellations leading to higher cost
Industry benchmark for Backorder Rate
- Industry Benchmark: Below 2%
How to improve Backorder Rate?
- Improved Demand forecasting for different sales channels and product categories.
- Strengthen relationships with suppliers to navigate low-stock and stock-outs to minimize the Backorder Rate
- Improve the visibility into supplier lead times
- Improved visibility into inventory consumption and movement patterns
- Implement automatic replenishment for certain products to avoid back-orders.