Many businesses don't give as much importance to their supply chains. The reality is that the success of any company lies in how it performs. Making the business successful means making the supply chain successful as well.
An optimized supply chain depends on driving all your back orders to zero. But what happens when your company finds itself with back orders? Or in a backlog? The general rule of thumb is the bigger the backlog, the better it is for you. And having back orders isn't always good.
But what exactly does all this mean? Keep reading to find out.
Your company's backlog is the total number of the orders your customers have sent that have not yet been shipped out. Ideally, this is a large number because you have many customers who have given you orders they want shipped.
Say a customer places an order on September 1. They request that the order get shipped to them on November 1. This order becomes part of your backlog between September 1 until October 31.
Your company's back orders are any that haven't been shipped because you're late.
Let's go back to the example above. If you don't ship that order on November 1, it becomes a back order on November 2. And it remains on your back order report until you ship it.
Interestingly, that order also remains on your backlog. So, in this case, back orders are also backlog. This can be confusing, since having a backlog can be good for business, while having back orders can be bad.
"I'm So Backlogged"
The term backlog has now become part of our daily lives. You may hear people refer to an overload of work or personal duties as a backlog. This puts a negative spin to the term.
But when applied to a supply chain, that means it's a good thing because you're getting paid for it and you aren't necessarily putting your customers out.
A healthy backlog—which may seem stressful—is actually a good thing. Simply put, the bigger the backlog, the better.
It's when deadlines, as in the example above, are missed that the backlog turns into back orders. Again, back orders are bad. So it's important to keep on top of those deadlines.
Optimized Supply Chains
An optimized supply chain is getting your customers what they want, when they want it, and spending as little money as possible getting that done. Consider your backlog to be this pipeline.
But back orders happen when you don't give your customers when they want it. If you're not supplying your customers what they want when they want it, you're going to find yourself in a back order situation.
Back Orders Can Backfire
But why are back orders bad? If you end up shipping the order, you end up realizing the revenue. So what's the big deal?
First, there's no guarantee your customer will keep the order with you. How many times have you canceled an order with a retailer because it didn't get to you when you needed it? By carrying back orders, you run the risk of leaving revenue on the table.
Secondly, back orders can be off-putting to your customer, and the next time they need a supplier, they may not come to you.
The Bottom Line
Remember, optimizing your supply chain means getting your customers what they want, when they want it. You'll also want to make sure you spend as little money as possible getting that done.
The only repeatable way to make sure to keep your customers happy is to know when they want it and then make sure that the "when" aligns with what you're able to do.
Make sure your customers understand your lead times, and—more importantly—make sure you understand your own lead times. Keep your back orders down and your backlog up and you'll be on your way to optimizing your supply chain.