Backorder = Bad

In your business, there are a few words that your customers should never have to hear from you.  Backorder is one of them.  In the mind of the customer, it never means anything good.

I recently ordered some materials for a project that I have been working on.  When I initially placed the order for the materials, I didn’t order enough, so I had to go back to get more.  That’s when I found out there were no more in stock.  As a result of the product that I need being on backorder, completion of my project is now delayed 2 months.  As you can imagine, I am not a happy camper.  As a customer, backorder means: 

• You don’t care about the inconvenience that this causes me
• You don’t manage your business well - I want to buy something that you sell, and you don’t have any to sell me.  It seems counterintuitive.  

I know.   It’s important for companies to closely manage inventories to keep costs low.  Business owners don’t want to keep too much inventory for fear of getting stuck with excess product they can’t sell, risk of damage while storing it, or inventory carrying costs on the books.  I get that.  But your customers should not have to suffer because of any issues you have with managing your business.  Effective inventory management requires the following: 

• A good understanding of the usage rates of the products that you offer
• The lead time that your suppliers need to get you more product
• Additional product on hand (also known as safety stock) to allow for large orders that deplete your stock or other unexpected events that impact your current inventory levels

Managing your inventory levels is a task that requires careful planning and a solid knowledge of your business.  When done effectively, you should be able to avoid having to ever utter that dreaded bad word to your customer.  Backorder is not your friend.

Comments

[Jevara Jackson]

Ms. Thompson,

Backorders are often bad, but are not completely unavoidable. There are instances where a sole source is the only provider (goods and services). In such cases, the sole source provider may have limited resources to allocate. It is imperative for entities to develop strategic relationships with their sole source providers. In such relationships, the entity may be afforded privilege information such as pending stock outs. Other benefits for having strategic relationships are having reserved stock allocated and price reductions.

Providers have reduced capacity and revised processes in an attempt to manage reduced revenues. The result has yielded reduced availability of resources. As a supply chain manager, I am tasked with understanding not only my industry, but the industry of my providers’ providers. Having such understanding allows me to mitigate risks. However, all the planning, strategic alignment and communication do not prevent the occasional backorder scenario. Backorders are not friendly, they are just another business challenge that if properly managed can leverage into an opportunity.

[Sonia E. Thompson]

Thanks for your comment Ms. Jackson! You are right, from a business standpoint, it can be tricky to manage inventory and it is always good when you overcome that challenge in your business and turn it into an opportunity. From the customer's standpoint, that rarely does them any good. They only know that they can't get what they want at the time they want it. And that could have negative ramifications on the customer, especially those who don't have a good understanding of the complex nature of the supply chain. What would be a win win for both business and customers in a backorder situation, would be for the business to give the customer something for their trouble in an effort to make up for the inconvenience that they are experiencing as a result of the backorder. That way, if the backorder situation is something that is truly unavoidable, the company won't will at least be able to hold on to the customer in the meantime. It's all about the customer.