The backorder rate is an important KPI within inventory management and supply chain management. This performance indicator shows the percentage of customer orders that cannot be fulfilled directly from available inventory. A high backorder rate often indicates insufficient inventory availability, inaccurate demand forecasting or disruptions within the supply chain. By monitoring this KPI on a structural basis, you gain better insight into the performance of your inventory management and can implement targeted improvements.
What is the backorder rate?
A backorder occurs when a customer orders a product that is temporarily out of stock. The order remains open until the inventory becomes available again. The backorder rate indicates how often this occurs compared with the total number of orders.
A low backorder rate generally means that your inventory management is well aligned with customer demand. A high backorder rate, on the other hand, can lead to longer delivery times, higher operating costs and lower customer satisfaction. For this reason, this KPI is often analysed alongside other performance indicators, such as inventory accuracy, order accuracy and delivery time.
What does a high backorder rate mean in practice?
An occasional backorder is not necessarily a problem. However, when the backorder rate increases consistently, it is often a sign that inventory levels are not properly aligned with demand or that disruptions are occurring within the supply chain.
This can have several causes, including unexpected spikes in demand, insufficient safety stock, inaccurate sales forecasts or supplier delays. A lack of real-time inventory visibility can also result in products being sold that are no longer actually available.
The consequences are often more significant than simply a delayed delivery. Employees spend more time adjusting orders and informing customers, while customers have to wait longer for their purchases. In some cases, they may even choose a competitor that can deliver immediately.
How is the backorder rate calculated?
The backorder rate is calculated by dividing the number of backorders by the total number of orders and multiplying the result by 100.
For example, if an organisation processes 2,000 orders in one month and 60 of those orders cannot be fulfilled immediately, the backorder rate is 3%.
By monitoring this KPI weekly or monthly, trends quickly become visible. An increasing backorder rate may indicate that inventory levels, procurement processes or demand forecasts need to be adjusted.
Why is the backorder rate important?
The backorder rate shows how well your inventory management aligns with actual customer demand. It is therefore a valuable indicator of the performance of both your warehouse and your entire supply chain.
A low backorder rate generally results in better delivery reliability, higher customer satisfaction, lower operating costs and more efficient inventory management. In addition, this KPI helps identify bottlenecks at an early stage, allowing improvements to be implemented in a timely manner.
How can you reduce the backorder rate?
Reducing the backorder rate is not simply a matter of holding more inventory. Well-organised inventory management ensures that the right products are available at the right time.
Important improvement measures include:
- more accurate demand forecasting, maintaining appropriate safety stock, real-time inventory visibility, stronger collaboration with suppliers; and structurally monitoring logistics KPIs.
By continuously optimising these processes, the risk of stock shortages decreases and delivery reliability improves.
How can a logistics partner support this?
A professional logistics partner helps organisations gain greater control over their inventory and logistics processes. By using modern warehouse operations, real-time inventory management and a Warehouse Management System (WMS), organisations gain continuous insight into current inventory levels and order flows.With warehousing and contract logistics, Axell Logistics supports organisations in optimising their inventory management. Thanks to real-time inventory information and scalable capacity, peaks in demand can be managed more effectively while maintaining product availability.
Would you like to learn more about outsourcing your logistics processes? Read more about Third Party Logistics (3PL) and discover how an integrated logistics approach can contribute to a lower backorder rate and higher delivery reliability.
More background information about supply chain KPIs can be found on the website of the Association for Supply Chain Management (ASCM).
