11 October 2022
Everything you need to know about Back-to-Back Orders
It is widely used by retailers so they can list more products for their consumers even though they might not be holding stock. This in return, encourages sales.
For example, let's say that Company A manufactures widgets. Company B is a distributor of widgets. Company C is a retailer that sells widgets to consumers.
Company A has an excess inventory of widgets that they need to get rid of. Company B can store and ship large quantities of widgets. And finally, Company C has the ability to reach consumers and sell widgets to them.
In this scenario, Company A would create a back-to-back order with Company B. Company A would send their excess inventory of widgets to Company B, who would then store and ship the widgets to Company C. This process would allow all three companies to benefit from each other's strengths.
Back-to-back orders are often used in dropshipping. When a retailer receives an order from a customer, they simply contact the supplier and ask them to ship the product directly to the customer's doorsteps. The retailer never sees or handles the product.
This is a great way for new eCommerce businesses to get started because it requires very little capital. However, it does come with some challenges.
The biggest challenge with dropshipping is inventory management. Because retailers don't carry any inventory, they have no control over when products are in stock. This can often lead to backorders, which can be very frustrating for customers.
A back-to-back order can help dropshippers avoid backorders by allowing them to source inventory from multiple suppliers. This way, if one supplier is out of stock, the retailer can simply source the product from another supplier.
However, they can be complicated to manage. Retailers will need to create two separate purchase orders, one for each supplier. They will also need to keep track of inventory levels at both suppliers and ship products from the supplier who has inventory in stock.
A backorder is when a business orders goods from a supplier but the supplier does not have the goods in stock. In a backorder situation, the business is at the mercy of the supplier as they would have to wait for the supplier to restock before they can receive the goods.
However, in a back-to-back order, the business is in control. They can create the order and send it to another business that can fulfil it.
If you're new to commerce and find yourself confused with these similar-sounding terms, here are some basics of sales to bring you up to speed.
What is fulfilment in sales?
Fulfilment in sales is the process of delivering the goods that have been ordered by a customer. This can be done either by the business itself or by using a third-party fulfilment company.
Dropshipping is a popular method of fulfilment as it allows businesses to outsource their shipping and logistics needs. In dropshipping, businesses will partner with a dropship supplier who will store and ship the goods on their behalf.
What is dropshipping?
Dropshipping is a type of eCommerce where businesses sell products without having to carry any inventory. When a business receives an order from a customer, it will then place an order with the supplier.
Back-to-back orders are often used in dropshipping businesses. The business will receive an order from a customer and then place an order with the supplier. The supplier will then ship the goods directly to the customer. This process allows businesses to sell products without having to invest in any inventory.
Inventory management is a critical part of any business, but it can be especially challenging for businesses that sell products. Back-to-back orders can help businesses manage their inventory by allowing them to outsource their storage and shipping needs.
A purchase order (PO) is a document that a business uses to request goods from a supplier. POs are typically used in business-to-business transactions.
In a back-to-back order, the retailer will create two separate POs, one for each supplier. The PO will include information such as the items being ordered, the quantity of each item, the price of each item, and the delivery date.
The retailer will then send the PO to the supplier. The supplier will review the PO and, if everything is correct, they will confirm the order and begin preparing the goods for shipment.
A sales order (SO) is a document that a business uses to confirm the request for goods from a customer. In most cases, businesses will use sales orders when they are selling products on credit.
In a back-to-back order, the retailer will create two separate SOs, one for each customer. The SO will include information such as the items being ordered, the quantity of each item, the price of each item, and the delivery date.
The retailer will then send the SO to the customer. The customer will review the SO and, if everything is correct, they will confirm the order and make a payment.
Once the payment has been processed, the retailer can then place an order with the supplier. The supplier will then ship the goods directly to the customer.
The difference between purchase orders and sales orders
While a sales order is used to confirm the terms of the transaction, a purchase order authorises the sale.
What is an Order Management System?
Order management software is a type of business software that helps businesses manage their sales and inventory. It typically includes features such as order tracking, invoicing, and shipping. Some of them can also help businesses automate the process of creating and sending purchase orders and sales orders.
There are many common terms used in commerce, and it's important for business owners to understand these terms so they can effectively communicate with their suppliers and customers. If you're looking for an eCommerce solution that makes setting up your own online store easy, try CartAlchemy™ for free today.