One of the most vital things you need to prioritize in your business operations is keeping up with customer demand. Although you might usually be capable of keeping up with tons of orders, it might hard to keep up with unexpected spikes in demand. And while spikes are indeed excellent for business, backorders are not.
The Problem With Backorders
Backorders could cost you a significant sum for many reasons. In this digital age, customers want what they want now or as soon as possible, so not many customers are keen on waiting a week or more for you to ship out their orders. This could lead to them ordering stuff from another company and your business losing the sale, on the other hand.
You might also have to pay extra for your staff to complete orders on time, which increases your labor costs. These, in turn, could damage your reputation. Put simply, backorders are terrible for business. Fortunately, you could take some steps to prevent them. These include seeking the services of firms that offer asset and shipping management, warehousing, and reverse logistics system services, such as ReverseLogix.
Manage Your Customer Demand
Customers send telltale signals to inform you of what they need and want as well as when they have to have it. The most important of these signals is ordering something for you since it communicates to you that customers are willing to actually spend money on your product.
Other vital signals include customer data you could get from personal meetings, phone calls, emails and surveys. You could likewise try to predict customer demand through the competitive landscape, historic sales, seasonality, as well as any sales promos or marketing campaigns that could affect demand.
Keep Your Internal Throughput in Check
Conduct time studies so you could measure your average throughput times and understand what happens every second of the entire process. Knowing the exact processes and how each one take could help you reduce backorders since you would know exactly when you could ship out products.
This way, you will not promise customers that you could deliver in one day when you know that it could take up to two days to ship out an order. Once you have established your average throughput times, you could then try to reduce them by addressing any potential issues.
Work With Your Supplier
Managing your supplier’s lead time is extremely crucial for getting rid of backorders. If a customer needs product x for instance, say, in a month, but you know that it would at least six weeks for your supplier to ship it to you, you have to manage the expectations of your customers and work with your supplier to reduce their lead time. To do this, ask your supplier if you could learn about their processes so you could find ways to help them.
By knowing the lead times of your suppliers and working with them to minimize those times, understanding customer demand, and improving your own internal throughput times, you could work your way to reducing or eliminating backorders. Remember, backorders come about due to slow shipping and you cannot ship orders on time, every time, when you do not efficiently manage your customer demand and lead times.