A backorder is a customer order that cannot be filled or shipped due to the lack of inventory available. These orders are nonetheless requested by customers and are shipped out as soon as the item becomes available, unless the customer specifically requests for the order to be canceled.
Backorders happen when the demand outstrips the supply. This logistical situation may happen due to lack of data so that the demand wasn’t accurately forecast, incompetent management, miscommunication, or simply the inability to manufacture enough items to service the demand (for high demand products). It can also be a result of a strategy from the manufacturer/provider. The strategy involves creating an illusion of very high demand and drive up prices or at least desirability of the product.
Backorders may, at a first glance, seem more desirable than surpluses, since surpluses means loss of money. However, backorders can also be a liability since the satisfaction of customers that aren’t serviced right away will drop, especially if it takes time to get the product shipped out to the customer. This is especially true for products that fall under the “needs” rather than luxuries category. If a customer needs the product, they will probably even end up just buying a similar one from the competitor, which in the long run may result in a loyal customer for the competition.
For luxury products, this is less of a problem, because the backorder will mean greater desirability due to either exclusivity or popularity.
