What Is Backorder?
Also known as: back order, backordered item, back-order
Definition
A backorder is the unfulfilled portion of a customer order that cannot ship because stock is unavailable, which the supplier agrees to deliver later. ERPs keep it open and allocate incoming supply to it as receipts or production complete.
Backorder Explained
When a sales order line asks for more than is available, the shipped quantity is less than the ordered quantity and the difference is the backorder. The customer may accept a partial shipment, ask for everything to ship together, or cancel the open balance. Which of those happens should be set by customer rules, not decided by whoever is picking that day.
ERPs treat backorders as open demand. In SAP, the order remains open for the unconfirmed quantity and backorder processing (the CO09 and V_V2 reports are typical entry points) reallocates new stock by priority. Business Central keeps the Outstanding Quantity on the sales line, Infor SyteLine tracks open quantities on customer order lines with a ship-complete option, and NetSuite has backordered quantity on sales order lines with a fulfilment workflow for partial shipments.
Backorders are a symptom, not a process. Their causes include forecast errors, long supplier lead times, quality holds and safety stock set too low. Tracking backorder rate and age by item tells you where planning parameters are wrong.
Do not confuse a backorder with a back-to-back order, which is a purchase created specifically to cover one sales order. A backorder simply sits open until any suitable supply arrives, and the allocation rule decides which customer receives it first.
Why It Matters
- Backorders directly affect customer service levels and on-time-in-full metrics.
- Allocation rules decide which customers are served first when scarce stock arrives, which is a commercial decision that needs to be explicit.
- Aged backorders are a leading indicator of bad reorder points, safety stock or supplier performance.
- Partial shipments increase freight and handling cost, so ship-complete rules matter.
In Practice
A customer orders 500 units; 320 are on hand. With partial shipments allowed, 320 ship and 180 are backordered. A receipt of 400 arrives; there are three open backorders for the same item totaling 600. The allocation rule (oldest promised date first) fills the earliest 400 and leaves 200 backordered. The backorder rate for the item is now a signal to raise safety stock or find a second supplier.
Frequently Asked Questions
What is the difference between a backorder and a stockout?
A stockout means the item has no available inventory. A backorder is the customer demand that remains unfilled during a stockout, held open for later delivery.
How do you reduce backorders?
Review safety stock and reorder points for the affected items, shorten or de-risk supplier lead times, and improve forecast accuracy for those lines.
What is ship complete?
A customer or order setting that holds the whole order until every line can ship, avoiding partial deliveries and extra freight.
Are backorders counted as demand in MRP?
Yes. Open sales order quantity is demand, so MRP will plan supply to cover it, subject to lead times and time fences.
Related Terms
ATP (Available to Promise)
ATP (available to promise) is the portion of inventory and scheduled production not yet committed to existing customer orders, calculated by date so order entry can quote a delivery a customer can rely on.
Safety Stock
Safety stock is buffer inventory carried above expected demand to protect against variability in demand and supply during replenishment lead time. In ERP it is netted out of available inventory so MRP plans replenishment before the buffer is consumed.
Reorder Point
A reorder point is the inventory level at which a replenishment order is triggered. It equals expected demand during the replenishment lead time plus safety stock, so stock on hand covers usage until the new supply arrives.
Sales Order
A sales order is the ERP document recording a customer's commitment to buy specific items at agreed prices and dates. It reserves or creates demand for supply, triggers picking and shipping, and later drives invoicing and revenue recognition.
Lead Time
Lead time is the elapsed time between initiating an order and having the material available for use. In ERP it is the offset MRP applies when back-scheduling a planned order from its due date to its release date.
Working with Backorder in a live environment? Our engineers do this every day - and our AI agents automate most of it.