What Is a Backorder and How to Manage Them?

Backorders are orders for goods that a company cannot fill at present because demand has outpaced supply. There are a lot of complex terms used to describe how companies keep goods flowing to consumers. From ERP and MRP to FIFO and LIFO to Supply Chain and Demand Forecasting, there seems to be an endless list of terms. But one key term often overlooked and misunderstood is that of backorders. High demand is sought after by all companies, but there are times when circumstances may push demand to a level that cannot be filled. Backorders are orders for goods that a company cannot fill at present because demand has outpaced supply. It may represent a good that is currently in production or it may represent one that has not yet begun production. In assemble-to-order environments, it may represent orders partially built and waiting on a component to arrive. Backorders should not be confused with “out of stock”. In the case of “out of stock”, supply or production may be uncertain. It may also be the end of a product’s lifecycle and slated for discontinuance. Backorders, on the other hand, are in-process or planned production that has encountered a lag due to several factors. The product will be made, it is simply not ready at the time the sales order is received. Timecode: 0:00 Introduction 1:32 How Does a Backorder Work? 2:41 What Causes Backorders? 4:48 Accounting for Backorders 6:11Advantages and Disadvantages of Backorders 7:33 Tips for Minimizing Backorders...