How backorders can impact your business

The process of growing and expanding your business takes time. It is also not a simple process. Many challenges and complications can occur along the way. One of them is backorders. Backorders can impact your business in several different ways. That is why in this article, we are going to cover what backorders are and how they affect your business. Additionally, we will cover all of the important reasons why you should contact and hire reliable and professional logistics companies in Middle East if you are relocating your business. Let us first take a look at what backorders really mean.

Backorders – What are they?

First of all, let us start by simply explaining the meaning of the term backorder. Backorders occur when your customers order something that your supplier does not yet have. Furthermore, when your manufacturer may not have yet produced the product ordered by your customer, you are dealing with backorders. It is different from the meaning of out of stock. When you are out of stock, you do not have the particular items in your inventory. However, when you have backorders, it means that not even your supplier has them. The supplier has to reach out to the manufacturer and ask for more of that particular item. All of this usually causes longer waiting times. If you do have all of your supplies ready for the shipping process, make sure you are familiar with the costly international shipping mistakes and how to avoid them.

A man researching how backorders can impact your business.
It is important to do your research and find out as much as possible how backorders can impact your business and what they actually mean.

How do backorders affect your supply chain?

The processing of backorders can take some time. Backorders can have a major impact on your supply chain. The so-called bullwhip effect is the tendency of a supply chain to over-or under-react to demand changes and the customer level. If there is, for example, an increase in 5% in customer demand for a product, supplies, and manufacturer may overreact and work as if there was an increase of 40%. This leads to excess inventory and overproduction which affects your supply chain tremendously. If there is a reported 5% decrease in demand, the supplies and manufacturer operate as if there has been a decrease of 40%. The result is, therefore, underproduction and poor customer service. The bullwhip effect can be caused by the backorders which is why it is important to know what they mean and how they affect the growth of your business.

How do you deal with backorders and limit the effect?

If you are dealing with backorders, you want to limit their effect on the supply chain as much as possible. It is also important to handle and deal with backorders carefully as they directly affect customer satisfaction. You can do this in several different ways.

  • Communicate with all of your partners openly. To avoid over or underestimating demands, open lines of communication about your businesses.
  • Encourage the sharing of inventory data. Access to downstream partner’s inventory data can reduce and limit the bullwhip effect caused by backorders.
  • Explain and show the effect of the bullwhip effect and backorders. Backorders are not always easy to understand. It is important to educate all of your business partners on what they mean and why it is so important to tackle them immediately.

If you need assistance with your inventory and shipping, contact professional packaging companies in Saudi Arabia to help you with packing and crating.

Talking with business partners.
Talk with your business partners and show them the importance of handling backorders and the bullwhip effect.

How to anticipate backorders

There are numerous causes that create backorders. If you want to successfully deal with backorders, you have to find out the causes first. There are several common but important causes of backorders that we should cover.

Factory shortages

Downstream partners have no control over this backorder cause. The manufacturer is the one who in this case, cannot fulfil the demands. Maybe they are having trouble with acquiring the needed materials or they are not producing the materials. Either way, this outage means there are no goods available to be sent to the downstream partners, retailers, suppliers, etc.

Human error

A very self-explanatory cause. An employee made a mistake by listing the order as a backorder and in turn, caused the backorder to happen. The item may still be physically available.

Delaying placing the order

Most businesses have a schedule for points of reordering. This helps companies and business reduce stock-outs without experiencing excess inventory levels. Someone manually makes a call after an order has been made, whether the product is due for reorder and resupply or not. 

Hiring professional shipping companies when relocating your business

Now that we have covered what backorders are, how they affect your business and some of the common causes, let us take a look at the important reasons you should hire professionals when relocating your business or shipping. Both of these are not easy to complete. The safety of your items is a must when shipping them to your customers. With professionals, you do not need to worry. There are many benefits to hiring professional shipping and logistics companies. They will handle all of your key moving-related tasks. Furthermore, you will not have to worry since your inventory is in safe hands. Moreover, they can offer you multiple different services at affordable prices. All of these services make your shipping and relocation easier and more efficient, giving your more time and energy to focus on your business or other tasks.

A ship with containers.
Hire professional and reliable logistics and shipping companies to assist you.

Conclusion

To sum up, what we have covered so far, backorders can impact your business in several different ways. It is important to know what they mean and to identify the causes of the backorders. With good organization, research, and communication you can tackle backorders efficiently and stress-free.

Latest Posts