If you’re a 3PL, you understand that the order fulfillment process can be complicated. Backorders can have detrimental effects on your business and your customers’ businesses. It causes delays in shipments and reduces customer satisfaction. Besides, it can lead to canceled orders. The eventual outcome is lost revenue for everyone involved. Continue reading to learn how 3PLs can avoid backorders.
Focusing On Inventory
One of the essential steps is inventory management if you want to avoid backorders. It encompasses all three components of supply chain activity: planning, forecasting, and logistics.
Planning identifies a company’s future needs for raw materials. It also recognizes the need for finished goods. Besides, it quantifies the amount of inventory needed. Forecasting refers to estimating how many units you’ll sell over a period. This is based on past performance and current trends. The information helps you determine the number of products that meet demands at acceptable profit margins.
Logistics refers to the transportation methods used to move products. So, inventory management involves a continuous cycle that begins when planning ends.
Quick read: Warehouse Automation Trends 3PLs Should Be Aware Of.
How Knowing customers Can Help 3PLs to Avoid Backorders
Backorders are the bane of any 3PL’s existence. They cause delays and can lead to increased costs—not to mention a lot of frustration. But how can you avoid them? By knowing your customers!
First, let’s define what a backorder is. A backorder is an order that was placed but not fulfilled. The reason could be that there was no stock available when it was placed. This can happen for various reasons, including:
- Late order placement
- Placing an order during a busy season. It could also be peak demand periods like holiday shopping or back-to-school shopping days.
The first step in avoiding backorders has good customer data. You should be able to know when they are likely to place orders for specific items. This will help you plan, so there are no surprises when the time comes to fulfill those orders. This information can come from various sources.
The sources may include online surveys and social media posts by customers. The customers could be interested in particular products or services offered by your company.
Once you know when people tend to place their orders, it becomes easier. As an operator of a 3PL business, you can expect demand for particular items.
Ensure you know the customer’s buying habits. This includes how likely they will buy in bulk and whether they order at the last minute. You can plan for backorders if you know that a customer tends to buy in bulk. You can do this by having more products on hand and ready to ship out immediately.
Make sure you are communicating To Prevent Backorders.
Communication is critical to preventing backorders. Ensure that everyone involved in logistics is on the same page. They should also know what can be done to avoid backorders. The first step is to talk with your suppliers about the issue. This is because they may not know that there’s an issue.
If you suspect a problem, ask them how many units have been sold and why they took so long to fill an order. If a supplier doesn’t know or won’t tell you this information, it’s time to find a new supplier. The new supplier must keep tabs on their front-end sales. They must also know when there are issues with fulfilling orders.
Focus on sales during holidays To Prevent Backorders
Shipping volume will be highest during the holiday season. But it’s not just the volume of shipments that increases. Shipping costs also increase due to increased demand and the need for last-minute delivery. Besides, customers often expect faster service than before. So, they are willing to pay more for it. To prepare your logistics team and prevent backorders, here are some things you can do now:
- Hire extra employees if needed
- Plan and make sure you have enough space in your warehouse or on your trucks
- Start investing in new technology (like RFID tags). Technology helps keep track of inventory better than ever before
Move away from traditional forecasting methods and transition to AI-enabled solutions.
AI-enabled forecasting solutions are more accurate than traditional techniques. This is because you can program them with many factors influencing logistics. This includes information about the production, sales, and inventory levels. In contrast, conventional forecasting methods are as good as the data used to create them. Suppose a company’s operations do not produce enough information for its forecasts. In that case, there’s little point in using those forecasts for decision-making.
AI-enabled forecasting solutions are also more efficient than traditional techniques. This is because they don’t need analysts and managers to process large volumes of data. By automating the process, these systems reduce human error. Besides, they increase accuracy over time. In addition, AI models allow companies to make adjustments based on new market trends. You can make the adjustments without hiring extra staff members.
The most effective way to avoid backorders is to manage your inventory efficiently.
There are two ways to do inventory management. First, you need to have a good understanding of the demand levels for your products. You should be able to use past data analytics and machine learning algorithms. These tools allow you to make better predictions about future sales trends.
Second, you must find a solution that allows for real-time visibility. Otherwise, it will be challenging to avoid out-of-stock situations.
The key here is efficiency. Focus on making sure all orders are filled within 24 hours. Besides, ensure you maintain an accurate stock inventory for each in-store item. This means moving away from traditional forecasting methods. And this you can achieve by using tools like AI-enabled solutions.
Third-party logistics have significant leverage to drive down costs. So, they must approach supply chain management to avoid related costs. When possible. By understanding the causes of backorders, 3PLs can cut the financial risk involved. This is an excellent opportunity for 3PLs and retailers to reduce backorders. Competition is fierce. But using AI can help you get ahead of your competitors and manage customer expectations. For more details, contact sales support.