A backorder occurs when a product or service is not provided on time to a client.
A customer order that cannot be filled (due to inadequate inventory levels) when presented, need it, expected or promised for
which the customer is prepared to wait for some time. The percentage of items back-ordered and the number of backorder days
are important measures of the company’s profitability, the quality of customer service, and the effectiveness of its inventory management.
In summary, a backorder is the “pending products or services which are accumulated after the expected (promised) delivered time
to be sent to the client due to a lack of available supply“.
Understanding What is Backorder
Typically, the backorder is measured in backorder days (number of days late) and amount of product late.
The backorder is a key indicator that demand for a company’s product and services overpass its supply.
It is also called a company’s backlog.
The type of the backorder and the number of items on backorder will affect the amount of time it takes before the customer
eventually receives the ordered product. Normally, the higher the number of items back-ordered, the higher the demand for the item.
What does Backorder mean for Business?
Backorders represent any amount of stock a company’s customers have ordered but have not yet received because it currently
isn’t available in stock. A company’s backorders are an important aspect of its inventory management analysis.
The number of products on backorder and how long it takes to fulfill these customer orders can provide insight into how well
the company manages its inventory and supply chain department.
A relatively manageable number of orders and there a short turnaround time to fulfill orders generally means the company is
On the other hand, longer wait times and large backorders are bad.
How to Measure Backorders
Backorders (company’s backlog) may be represented in terms of money [dollar]—as in the value of sales—or maybe expressed
by the number of units ordered or sold.
Advantages and Positive Aspects of Backorders
The term backorder may implicate a negative situation for the company, but there can be positives aspects to businesses that
have these orders on the accounting books.
Keeping a large supply of stock requires storage space, which, in turn, requires money. Companies that don’t have their own
storage centers have to pay for services to hold their inventory. By keeping a small amount of stock in supply and the rest on
backorder alleviates the need for extra storage, and therefore, reduces costs. This cost reduction can be passed on to consumers,
who will likely return because of a company’s low prices. This is especially true when sales and demand for certain products is high.
Disadvantages and Negative Aspects of Backorders
If a business consistently is in backorder, this is an indicator that the manufacturer’s operations are too short, tight, and lean.
Definitely, it represents that the company is losing out on business by not providing the products demanded by its customers.
If a customer sees products on backorder—and notices this frequently—they may decide to cancel orders, forcing the company
to issue refunds and readjust their inventories, manufacturing orders, and books.
When an item is on backorder, a customer may look elsewhere for a substitute product, especially if the expected wait time until
the product becomes available is long. This can provide an opportunity for once-loyal customers to try other companies’ products
and potentially switch their loyalties. Difficulties with proper inventory management can lead to the eventual loss of market share
as customers become frustrated with the company’s lack of product availability.
CIQA is a quality and regulatory consultant with 25 years of experience developing products and managing projects in the medical
device supply chain, and pharmaceutical industries. Rest assured of the safety or being in the right hands.
Our Lean Manufacturing team could provide you a broad range of professional expertise implementing these techniques and tools.
SUBSCRIBE AND FOLLOW US TO LEARN MORE.
For more details about What is Backorder, follow us.
Three (3) Options to Create Document Control Management DCM Procedures:
Bronze Option. You Can Create Your Own Quality Procedures, using a Template.
You can download samples of the Document Control Management DCM procedure templates in .pdf format.
To see the complete list of the most popular quality procedures templates, click here.
In addition, you can request a quotation to buy online a full SOP template document in MS Word format that is completely
editable, ready to fill, and adapt to your specific needs.
Silver Option. We Can Bring You Formal Training about What is Backorder.
This option is recommended if you want to learn more about how to build robust quality system procedures. One of our expert(s)
can provide online step-by-step training to your team (unlimited assistance) on how to build reliable SOPs using our template(s).
Also, you can improve your corporate quality procedures and policies by incorporating our template(s) and tools.
It includes a fully editable template from the Bronze option, plus training, exams, and a training certificate for each assistant.
Request a quote now.
Gold Option. We Can Create Customized Quality Procedures.
One of our expert(s) will create and prepare your customized SOPs with the inputs and specific information of your company.
It includes a fully editable template from the Bronze option, plus online support in document creation, implementation, and training.
Request a quote online.
Get in compliance today, CONTACT US (Hablamos Español)
REFERENCES: What is Backorder.