As a supplier in a supply chain, it’s vital to recognise when you have a back order problem and, make no mistake, it is a problem. There are a number of reasons why back orders are the bane of supply chain—the ugly stepchild of good-looking line-fill rates.
Back Orders: Three Reasons they Hurt Your Business
Firstly, as a supplier, the back order problem tends to become a vicious circle, especially as you get closer to the end of the financial year. There is a tendency to ship more and more partial orders in order to hit revenue targets, but all this does is exacerbate the amount of revenue that’s tied up in unfilled orders.
Secondly, back orders put you in a dilemma. Do you just ship the partial orders and quietly hope the unavailable items are overlooked by your customer? If so, that’s pretty bad service. On the other hand though, openly proclaiming to your customers that their goods are on back order is an encouragement for them to cancel the unavailable goods or worse, go buy them elsewhere.
Thirdly, once you have a back order, it’s in your interest as a supplier to hold onto the items when they become available, so as to ship them when you have a new order for the customer, to save the expense of making a special trip with back-order-items only. While this might save you some transportation costs, it reduces customer service performance even further.
Don’t Let Back Orders be the Bane of Your Supply Chain
Why not start by giving back orders a name change? “Unfilled orders” would be a more honest term and might help focus your team on making the necessary improvements.
If your company has back orders in its system, you have a performance problem. So don’t let the bane of your supply chain hide behind good-looking line fill percentages—90% line fill is not a good result if 50% of your orders contain back ordered lines.
Engage your own suppliers, be open with your customers and work with them to improve supply chain performance by reducing back orders. There’s a lot of money on the table to be had by all concerned.