In a scenario where the items ordered are in stock, this is the order fulfillment process: The items are in stock with one where the items are out of stock and being backordered.
To understand how backordering works, let’s compare an order fulfillment process where The high number of backorders, indicate that the strategy helps to increase customers’ curiosity and desire to buy. For example, the Samsung Galaxy S10 5G, which is one of the first phones to offer 5G support, is on backorder in the UK before its launch. Some technology-intensive companies use backordering as a marketing gimmick, to increase the value of the product in the eyes of the customer. By using backordering, you can meet the summer demand with less risk.
You don’t want to be left with unsold units over the winter, because they might be damaged by weather or be upstaged by newer models next summer. But once winter hits, the demand plummets. For example, if you’re a retailer who sells air conditioners, you get a surge in demand every summer. Less wasteīackordering reduces wasted inventory, because the faster turnaround means goods have less time to become damaged or obsolete. For Example: Tesla, prefers to keep their inventory less and produce on demand, thereby reducing the amount of capital and risk tied up with excess inventory storage. It also frees up capital that would otherwise be tied up in stock and holding costs. For retailers that are just starting out, it makes it possible to spend less on starting inventory. Reduced costsīackordering reduces the problem of overstocking products, which in turn reduces warehousing costs. By using backordering instead of a standing inventory, the company has turned a convenient business decision into an appealing selling point for its customers. For example, Harley Davidson allows its customers in the UK an option to build their own motorcycles. Since backordering involves passing the customer’s order along to your supplier, it’s easy to accommodate custom requests. It also offers a few other essential benefits: Customization Why is backordering important?īackordering increases sales for your business and prevents your customers from going to your competitors. In such businesses or companies backordering is an essential and a crucial part in sustaining business operation. Therefore they must accurately predict the customer’s demand within a stipulated amount of time. The businesses that use just-in-time inventory management strategy, where the companies only receive goods when they’re demanded, thereby decreasing inventory holding costs have items backordered on a regular basis.
It’s a common practice, used by retailers all over when they’re faced with a surge in demand. Businesses implement backordering when a sudden increase in sales means that products are getting sold faster than they can be stocked. What is backordering?īackordering is the process of allowing your customers to place orders even if you don’t have sufficient stock on hand. Instead they allowed Echo devices to be backordered, so customers could place their orders and wait for them to be fulfilled when stock was available. With such a huge demand for their product, it would have been foolish for the company to turn away customers and forgo revenue. When Amazon put the Echo on sale for Black Friday in 2018, it sold out of stock almost instantly.
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