Backorder

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's available inventory but could still be in production, or the company may need to still manufacture more of the product. Backorders are an indication that demand for a company's product outweighs its supply. They may also be known as the company's backlog

Main stones

A backorder is an order for a good or service that cannot be filled immediately because of a lack of available supply.

Backorders give insight into a company's inventory management. A manageable backorder with a short turnaround is a net positive, but a large backorder with longer wait times can be problematic.

Companies with manageable backorders tend to have high demand, while those that can't keep up may lose customers.

However, backorders allow for a company to maintain lower levels of inventory, have lower risk of obsolesce and theft, and may result in natural marketing for its highly demanded product.

Popular products in high demand (i.e. next generation gaming consoles or new iterations of cell phones) may experience backorders.

A company's backorders are an important factor in its inventory management analysis. The number of items on backorder and how long it takes to fulfill these customer orders can provide insight into how well the company manages its inventory. A relatively manageable number of orders and a short turnaround time to fulfill orders generally mean the company is performing well. On the other hand, longer wait times and large backorders may be problematic.

So far the definition of backorder. We need to be very clear about how the company manages its supply chain and what its objectives are when we are building a system, whether it is in PowerBi or Excel.

In fact, it is not necessarily the case that an order line with an expired delivery date is a real backorder; it depends on the agreements made with the customer. For example, sometimes groupage shipments are managed in order to maximise the result of a particular shipment; or it has been decided to make a shipment every Friday, but the date entered is a Wednesday. In these cases, it is necessary to work with the people responsible for order entry. They should enter the orders received, taking into account the commercial agreements. This is certainly much easier with a good ERP system and avoids unnecessary discussions, especially within the company itself.