{"id":8928,"date":"2021-03-22T16:27:59","date_gmt":"2021-03-22T15:27:59","guid":{"rendered":"https:\/\/www.eyeon.nl\/?p=8928"},"modified":"2024-08-05T14:02:39","modified_gmt":"2024-08-05T12:02:39","slug":"what-is-a-backorder","status":"publish","type":"post","link":"https:\/\/eyeonplanning.com\/blog\/what-is-a-backorder\/","title":{"rendered":"What is a backorder and how can it be reduced?"},"content":{"rendered":"<h3>What is a backorder?<\/h3>\n<p>A backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply. The item may not be held in the company&#8217;s available inventory but could still be in production, or the company may need to manufacture more of that product.<\/p>\n<h3>Advantages of having backorders<\/h3>\n<ul>\n<li><strong>It reduces costs<\/strong>: As a beginner retailer, you should avoid overstocking products as they are not direct cash. For instance, by setting a target service level of 80% it is clear that 20% of demand will be intentionally back-ordered in order to save on inventory expenses. When focusing on back-ordering there is no need to pay for any extra storage space, because whatever is getting in, consumers have already bought it and this directly cuts costs.<\/li>\n<\/ul>\n<ul>\n<li><strong>It shows the customer pattern<\/strong>: Back-ordering tells us a lot about consumer behavior and how they perceive the product. When customers continue to submit orders even though products are out-of-stock, you can look into the statistics and analyze how much stock you need in the future.<\/li>\n<\/ul>\n<h3>Disadvantages of having backorders<\/h3>\n<p>However, back-ordering can bring some disadvantages with it. In the picture below it is shown that customers have two options when their order cannot be immediately satisfied:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-8933 size-full\" src=\"https:\/\/www.eyeon.nl\/wp-content\/uploads\/2021\/03\/Picture3.jpg\" alt=\"what is a backorder?\" width=\"973\" height=\"304\" \/><\/p>\n<h4>Not having enough products in stock can cause:<\/h4>\n<ul>\n<li><strong>Loss of competitive edge<\/strong>: Your loyal customers can decide to buy from your competitors because they have the product in inventory, while you are out of stock.<\/li>\n<li><strong>Customer frustration<\/strong>: Customers may decide to wait until you deliver them the right product or they might get a similar product that you have in stock. But, they will leave with disappointment and frustration.<\/li>\n<\/ul>\n<h3><strong>Here are a few steps to follow to reduce your backorders and prevent losing customer loyalty and revenue:<\/strong><\/h3>\n<ol>\n<li><strong>Get real-time data on your inventory levels<\/strong>: The first step to avoid backorders is to have a system that accurately tracks warehouse inventory levels and generates real-time alerts. You should discover the inventory run-out with no delay.<\/li>\n<li><strong>Forecast your demand<\/strong>: Collecting data on your historical sales and forecasting future demand helps to keep the right amount of products in your inventory.<\/li>\n<li><strong>Create a list of potential reasons for backorders<\/strong>: Investigate \u201cwhy\u201d there could be a backorder in your system. The reasons could be for example:<br \/>\na. Supply capacity: The company does not have enough capacity to internally\/externally supply that product.<br \/>\nb. Quality issue: There\u2019s a product or raw material issue that prevents the order from being satisfied.<br \/>\nc. Logistics: The demand is unsatisfied due to transportation issues.<br \/>\nd. Obsolete product: The customer ordered a product that is not being produced anymore.<br \/>\nThe list of what elements can create backorders might differ according to the type of business.<\/li>\n<li><strong>Create insight<\/strong>s: Once you have accurate data and each backorder is assigned to a reason code it\u2019s time to create insights and break down the problem. Creating visuals is a guide to finding and solving the weaknesses that are causing backorders. Additionally, it is a way to monitor how the backorder trend is progressing in time.<\/li>\n<\/ol>\n<p>In supply chain management it is hard to imagine how you can <a href=\"https:\/\/eyeonplanning.com\/expertise\/inventory-optimization\/\">be effective at inventory management<\/a> and customer satisfaction without a strong grasp of your underlying backorder KPIs. A dashboard provides an at-a-glance window into your business performance and enables you to manage all those orders of out-of-stock products. <strong><a href=\"https:\/\/eyeonplanning.com\/offering\/visualinsights\/\">Learn more about dashboarding!<\/a><\/strong><\/p>\n<p class=\"h1\">Curious how we turn your data into actionable insights?\u00a0Our powerful visualizations will turn your data into actionable insights that facilitate both planners and managers to focus and make high-quality decisions, faster. Do you make data-driven decisions with confidence? If not (yet), please <a href=\"https:\/\/eyeonplanning.com\/about\/contact\/\">get in touch with our specialists<\/a> to see how we can support you.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is a backorder? A backorder is an order for <\/p>\n","protected":false},"author":1,"featured_media":9723,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"aside","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[14],"tags":[186,131,93,54,55,87],"class_list":["post-8928","post","type-post","status-publish","format-aside","has-post-thumbnail","hentry","category-news","tag-backorder","tag-dashboarding","tag-demand-planning","tag-insights","tag-inventory","tag-visual-insights","post_format-post-format-aside"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>EyeOn<\/title>\n<meta name=\"description\" content=\"Did you know that having backorders can be beneficial? 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