Inventory management requires keeping enough goods in stock so that a business can meet the needs of its customers without excess inventory.
A back order is an order that cannot be fulfilled at the time it is shipped because there is no stock available to fulfill the order. Companies often try to avoid late orders because customers often want their orders fulfilled immediately, although they may be willing to wait in some circumstances. However, companies also can’t always predict how orders will move, which can make it difficult to make decisions about what to stock. Therefore, the company is constantly walking a tightrope when it comes to inventory management.
Barcode scanners and other automated systems help maximize profits and reduce the risk of backorders.
Typically, when a customer places an order for something that a business knows is out of stock, it will alert the customer to the fact that the item is on backorder. The customer has the option to cancel the order without penalty or wait for the items to arrive and an estimated shipping time is usually provided to help the customer make that decision. If the customer is willing to wait, their order will be fulfilled when the stock arrives.
Keeping track of available inventory can help minimize the risks of needing a back order.
Sometimes items are backordered for a longer period than expected. In these situations, companies may waive shipping costs or offer other compensation to customers as a reward for their patience during the backorder period. This is also designed to retain customer loyalty so that they are inclined to patronize that business again despite the back order issue because they remember being treated well.
Businesses that constantly have items on backorder can create a bad reputation for themselves.
For businesses, backorders can be expensive. In addition to being associated with costs such as administrative fees, backorders can also lead to a bad reputation, which can cause the business to lose future customer orders. Even when delays are out of a company’s control, such as when a manufacturer limits supply of a popular item and a company orders as much as it can but can’t meet demand, customers may view the company unfavorably. Especially if a customer repeatedly finds a backorder for an item, that customer may do business elsewhere.
Inventory management requires keeping enough goods in stock so that a business can meet the needs of its customers without excess inventory. Excess inventory requires storage space for the excess, which costs money. It can also force companies to return items at the end of the reason, which is costly, and when products are not returned, the company may be forced to sell them at a discount to run out of stock, which could result in a loss. For this reason, companies seek to balance their inventories to avoid a backorder situation by keeping a reasonable number of items in stock.