Keeping your business running smoothly isn’t easy when life throws curveballs like Covid-19. If you received orders you couldn’t process, you may be dealing with a log of backorders.
In economic crises, backorders happen due to the bullwhip effect. The bullwhip (or Forrester) effect occurs when supply chains over- or underreact to customer demand. Named for how demand-side changes ripple down the supply chain, the bullwhip effect is responsible for shortages in everything from toilet paper to prescription drugs.
If your product or service relies on such a supply, dealing with backorders can be difficult. How can you do so in a market of shortages and supply chain nightmares? By working on both sides of the equation: the customer-facing side, as well as the supplier side.
Straightening Out Your Supply Chain
If you’re blessed with a short, localized supply chain, shortages may straighten themselves out. But the more suppliers are involved — and the more niche the supplies you’re looking for — the more difficult this becomes.
To keep the bullwhip from putting kinks in your operations, there are a few things you can do:
- Develop relationships with alternative suppliers.
If a one-of-a-kind supplier of yours is struggling to manage their demand, you may be out of luck. But if you have backup suppliers in that category, chances are good that you’ll be able to get what you need through one of them. Group purchasing organizations maintain huge supplier networks for this very reason.
- Keep communication lines open with your suppliers.
In many cases, your suppliers will see a surplus or shortage coming before it hits. Be proactive: Communicating with the suppliers and manufacturers in your network can help you plan ahead. Even if you can’t pause your own operations, you can at least let your customers know what to expect.
- Use a data-driven inventory management system.
It might be time to upgrade your inventory management. Many of today’s platforms use machine learning to predict future supply levels and recommend reorders. Some of them even will even provide visibility to your suppliers so they can keep you stocked.
- Ensure inventory accuracy.
No matter how communicative you are or feature-rich your inventory management system, inaccurate supply counts can throw a wrench in your operations. Make sure you know exactly how much you truly have and how much people are buying.
Remember, many of your suppliers are in the same situation you are. Be patient, and help each other out. By working together, you’ll both save time, money, and key customer relationships. Speaking of customers…
Keeping Customers Happy Despite the Wait
It’s always disappointing trying to buy things that are out-of-stock or backordered. But in a pandemic, your customers should understand.
Still, it’s incumbent on you to minimize the hassle and wait time your customers face. Even if you can’t speed up your supply deliveries, there are a few things you can do:
- Adopt a FIFO model.
A first-in-first-out approach is the fairest, fastest way you can handle backorders with customers. In a nutshell, you serve the oldest orders first and the most recent ones last.
Be sure to post this on your website, social media, and front door, if you have one. Customers will call and ask about their order. While it’s important to be responsive, minimizing call volumes lets your team spend more time fulfilling orders and less time on the phone.
- Manage expectations through clear, firm communication.
Let your customers know that what they’re looking for is backordered and that you’ll be following up with updates. If you can, provide a projected delivery date. If not, explain why.
Be as transparent with your customers as you can. If you’re switching to a backup supplier, say so — but make sure you reinforce that they can expect the same quality they’re accustomed to.
Regardless, thank customers for being patient. A small “thank you” goes a long way.
- Build anticipation.
Backorders can upset customers. Rather than be negative, get customers excited. Use tools like countdown clocks and service credits to help customers look forward to the fulfillment of their order. Write blog content about how you’re going above and beyond to address your backlog.
- Offer alternatives.
Due to supply shortages, your customers may have to wait to get exactly what they want. But what if you could give them something similar without the wait? Some customers are sure to take you up on that offer.
You might be surprised at just how willing customers are to accept alternatives. Phone cases, for example, can be made from many different materials. If the customer isn’t dead-set on a silicone case, perhaps they’d be happy to receive a plastic one instead.
- Expedite shipping.
When a customer receives their order depends on more than when you ship it. The shipping process itself can add days, or even weeks, to the customer’s wait time.
In times like these, expedited shipping can be expensive. Be judicious: If a customer’s order is only worth $10, paying $25 for shipping simply doesn’t make sense.
With that said, giving up some of your profit margin might make sense if it means the difference between a loyal customer or a churned one. Remember, boosting customer retention by just 5% can increase profits by up to 95%.
- Don’t process payment until backorders can be filled.
These are tough economic times not just for companies, but also for customers. One of the surest ways to upset them is to process their payment before you fulfill their order.
While this can put your business in a temporary cash crunch, consider the alternative: Customers who are charged for an order they haven’t received are likely to cancel it. When that happens, you’ll have to issue a refund.
In that scenario, you’ll have spent resources on the customer without any sort of payoff. Don’t take the risk.
When backorders happen, both your suppliers and customers need to hear from you. Nobody likes product shortages or being left in the dark.
Do what you can to be a source of stability. Getting your operations up and running again is stressful, absolutely. But as you do, that mountain of backorders will melt away faster than you think.