Backorder

What is a Backorder?

A backorder is known as the order for a service or product that cannot be filled at the current time, courtesy to lacking supply. The item, instead of being in the inventory, could still be in production. The backorder indicates that the demand for a product is outweighing the supply.

And, this situation is also known as the Backlog of the company. Furthermore, the number of items listed on the backorder can impact the time it takes to deliver the ordered product. The higher the backorder, the higher will be the demand.

Managing Backorder

Backorders define the stock amount that customers have ordered, but didn’t receive because of unavailability. Lacking the supplies doesn’t necessarily mean that companies don’t get to work on their backorder. In fact, keeping backorders can help increase demand, retain customers and create value for products.

Moreover, the backorder is an essential Factor in analyzing inventory management. The number of backorders and the time consumed to deliver the same offers important insight into how the company is managing its inventory.

If the number of orders is less and the turnaround time is shorter, it indicates that the company is doing well in business.

Advantages and Disadvantages of Backorders

Having a large stock supply demands adequate storage space, which requires a huge amount of money. By keeping a small supply in stock and the rest on backorders, companies can eradicate this additional cost of having a large storage space; thus, decreasing the overall cost substantially.

On the other hand, if companies keep their items in backorder consistently, this could be regarded as lean operations of the company. It could also result in the company losing out on the business by not fulfilling the demand on time.

If a customer’s order goes on a backorder frequently, they may cancel the orders, forcefully get the refunds, and change the company altogether. Furthermore, if the expected waiting period goes beyond, customers would not feel hesitated in finding a substitute somewhere else. This gives an opportunity for loyal customers to try some other companies and switch their allegiances.

Thus, difficulties with inventory management can cause eventual losses in the Market share.