The backorder is an order for a service or goods which can not be filled at the actual time because of lack of the available supply. This product might not be held back in the company’s attainable stock but may still be at the place where it is produced or the company might want to produce more. The backorder is a sign that the need for a company’s product is more than its supply. It can also be called the company’s backlog.
The way the backorder is and the number of items that are written on the backorder usually trigger the quantity of time it takes before the customer finally receives the ordered product. When there is increase in the number of items back-ordered, there will also be an increase in the demand for the product.
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How do we Understand Backorder
Backorder expresses the number of products the company’s customers have ordered but are yet to receive because currently, it is not available in stock. That they may not have the stock does not mean that the company can not act on backorder. It is worthy to note that companies still do their normal business even if they do not have their stocks available. The act of keeping products on backorder helps them boost their demand, increase and also retain their customer base, and shows the value of their products.
A company’s backorder is a very great factor in their stock management analysis. The number of products on backorder and how long it usually takes them to satisfy their customers’ orders may provide previews on how well the company handles its stocks. A good manageable number of orders and a short turnaround time to satisfy these orders shows that the company is working well. Also, long wait times and huge backorders may cause issues. Using a brief example, the Apple company who put its iPhone x on backorder immediately after it was released in the year 2017, although, the initial supply of the phone was sold out, demands were still high. The customers whose orders were put on hold were informed that their wait time for delivery will be in 6 weeks.
Making an Account for Backorder
Backorder can be expressed using a dollar figure like in the value of sales or maybe by the number of units that are ordered and sold. Backorder usually requires proper accounting. Some companies do inform their customers that the product they have ordered is on backorder and also inform them when the product will be ready and when delivery will be made. The sale is then written on the company’s book as a backorder and not as a completed sale. So if the customer decides to cancel their order, it will not really affect the company and they won’t have to reconcile their accounting records. The company places order with its manufacturer to deliver the goods. Once the goods are ready, the company searches for the purchase order and follows through until the delivery is completed. Then the sale can now be recorded and checked off as completed sales.
The Advantages of Backorder
The word can bring up negative images, but it can also be positive to businesses that have these orders on their books. Having a big supply of stocks will need enough spaces for storage and this, in turn, will require a lot of money. Some companies that do not have their own storage centers usually pay for services to hold their stocks. But when they decide to keep a small amount of stock in supply and the remaining ones on backorder erases the need for extra or excess space for storage and also decreases cost. The reduction of cost can also affect the customers and they will return for more because of the company’s low price. This usually works out well when the sales and demand for a particular product are on the high side.
The Issues With Backorder
If a company continuously sees an item on backorder, it could give a signal that the company’s operations are too slow, it can also mean that the company is losing out on business because they do not provide to the customers the products which they require. Most times a customer continuously sees products on backorder, they may want to cancel their orders thereby making the company refund their money and re-adjust their books.
When a particular item is on backorder, some customers may go elsewhere to get the products, mostly if the expected time asked to wait for the product to be available is too long. This act may trigger some loyal customers to try another place and unfortunately, they may switch their loyalties. Having difficulties with proper stock management may cause an organization to eventually lose its market shares because some customers will become frustrated with the company’s lack of available products.
Assemble to Order
This is a business production strategy in which products that are ordered by customers are quickly produced and arranged to a particular level. It mostly ensures that the important parts of the products are already manufactured but not yet assembled. So once they receive an order, they quickly put together the parts and the final product is then sent to the customer.
This Assemble To Order strategy has really combined the benefits of both the make-to-order and make-to-stock products getting into the customers’ hands very fast. In some cases, the time and cost which was used in producing the product from its components are minimal. However, the time and the cost which was used to build the product ordered by a customer is always considerable.
Made possible by technology and advancement processes in production, and stock management has played a big role in making assemble-to-order strategy a reality. It also includes cheaper methods of shipping products, and this strategy has been a success for product customization products.
