1) Meaning

Backorder Rate is a supply chain KPI that measures the proportion of customer orders (or demand) that cannot be filled immediately from available stock and must be placed on backorder (delayed fulfillment).

It reflects how often customers have to wait for products instead of receiving them right away.

  • High backorder rate → frequent shortages, poor inventory planning.
  • Low backorder rate → efficient inventory, higher customer satisfaction.

2) Formula

There are two common ways to calculate it:

  1. By units (demand-based):

$\text{Backorder Rate} = \frac{\text{Backordered Units}}{\text{Total Units Ordered}} \times 100\%$

  1. By orders (order-based):

$\text{Backorder Rate} = \frac{\text{Orders with backordered items}}{\text{Total Orders}} \times 100\%$

3) Example

  • In one month, customers ordered 1,000 units.
  • You could ship 920 units immediately, but 80 units had to be backordered.

$\text{Backorder Rate} = \frac{80}{1000} \times 100\% = 8\%$

So, 8% of demand was delayed instead of being fulfilled immediately.

4) Why it matters

  • Customer experience: Frequent backorders frustrate customers and may push them to competitors.
  • Revenue impact: Some backorders convert later, but others may turn into lost sales if customers cancel.
  • Forecasting accuracy: High backorder rate signals poor demand forecasting or insufficient safety stock.
  • Supply chain health: Helps detect bottlenecks in procurement, production, or logistics.

5) How to reduce Backorder Rate

  • Improve demand forecasting with advanced models (ARIMA, Prophet, LSTM).
  • Set proper safety stock levels to cover unexpected spikes in demand.
  • Strengthen supplier reliability and reduce lead times.
  • Use real-time inventory tracking to react faster to low stock.
  • Segment inventory (ABC analysis): keep more safety stock for high-value / high-demand items.

6) Relationship to other metrics

  • Fill Rate: Opposite view — measures how much demand is filled immediately.
  • Stockout Rate: Related, but stockouts = lost sales, while backorders = delayed sales (not necessarily lost).
  • Lost Sales Value: If backorders are canceled, they contribute to lost sales.

Example:

  • Total demand = 1,000 units
  • 920 units shipped immediately
  • 50 units backordered and later fulfilled
  • 30 units canceled (lost sales)

Then:

  • Fill Rate = 92%
  • Backorder Rate = 5%
  • Stockout Rate = 3%
  • Lost Sales Value = 30 × unit price

Bottom line:
Backorder Rate measures how often customer demand is delayed instead of being met immediately. It’s a key KPI for balancing inventory cost vs. service level and complements Fill Rate, Stockout Rate, and Lost Sales Value in supply chain analysis.