![]() Manufacturer or supplier problems can happen for many reasons.įor example, if they run out of raw materials or equipment needed to produce your order, they may not be able to deliver in time. This interruption in the supply chain can create a scenario where backorders happen. If your manufacturer or supplier fails to meet your order in a timely manner, you may run out of items. In this case, the average safety stock would be 2,500 candles. The average number of days to get the final product after placing an order is 10 days. The number of days it takes to get candles from the manufacturer after placing a new order is 20 days. The maximum number of candles sold in one day is 200, whereas the average number of candles sold per day is 150. ![]() Let’s say a small business sells candles. Calculate yours with the following formula: Using better inventory management systems and keeping the right amount of safety stock can help you avoid this problem.Įach business’s safety stock level differs. If your business runs out of inventory and your safety stock can’t meet the demands of your customers, backorders will occur. In other words, it’s the extra stock kept on hand to avoid sales disruptions. Safety stock is an additional quantity of an item kept in inventory in case the item sells out faster than expected. This created a backorder on toilet paper, forcing companies to develop new solutions to meet the massive demand. It could also be because of a sudden rise in the product’s popularity or a seasonal factor that affected demand.ĭemand for toilet paper spiked 845% during the COVID-19 pandemic, as people indulged in panic buying. Your targeted marketing campaign may work more successfully than anticipated or an influencer like Kim Kardashian may promote your product. When product demand increases unexpectedly, backorders are likely to happen.Ī sudden flood in sales could happen for a number of reasons. I’ll discuss strategies to help you effectively manage backorders.īefore getting into how to manage backorders, you’ll want to understand why backorders pop up.īackorders happen for different reasons, such as the type of product, speed of the manufacturing process, and changes in demand. If you own a business, learning to handle backorders is important. Once the manufacturing process picks up the pace and the inventory is restocked, it’ll be delivered to the customer (and if they haven’t lost their mind already, they’ll accept it).Ĭan’t imagine how they were getting anything done without their coffee! In this case, the espresso blend is on backorder. The business allows the customer to order the espresso blend with the guarantee to deliver it once the stock is replenished. ![]() Let’s say a small coffee business in California has a shortage of coffee blends due to a delay in the production stage.Ī customer wants to order the espresso blend, but the website says it’s unavailable. ![]() The product might also be in the manufacturing stage or low in stock - in which case, you’ll need to place a purchase order for it. The item may have sold out faster than usual (lucky for you!), or the product supply may have been low. When a customer orders an item with a delayed delivery date due to temporary unavailability, that item is on backorder.
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