Backorder … What does it really mean?
If you are party to a Supply Agreement or Contract you may feel you have adequate protection against stock outages through various clauses in the agreement. In reality though all too often you will experience those frustrating stock problems that are too readily labelled “Backorder”. Now what this usually means is that your supplier expects loyalty from you in order placement but is unable or is unwilling to maintain sufficient stocks to meet your ongoing needs. The supplier may hide behind his JIT aims and plead total innocence and blame the rest of the world for stock problems arising from trying to walk the supply/demand tightrope! In fact, he would rather you lifted your reorder point and provided him with longer lead times, but from the users point of view this goes against the reasons for the contract being set up in many cases. So, what can you do to protect your supply or at least minimise problems?
- Insist on a clause where the supplier must compensate for any additional costs you may incur through his inability to meet your order. If this is unacceptable the alarm bells should start ringing!
- Reserve the right to source ten percent of your envisaged annual usage from alternate vendors. This can help in an emergency but will also permit trialing new products and technology you may otherwise miss out on.
- Include the requirement for the Contract to be re-negotiated if your usage increases by a substantial amount. In the same way watch for usage related penalty clauses such as “Take or Pay”.
Finally, always remember that many suppliers are genuine in their aims but incompetent in practice. If you find a supplier that values your loyalty and lives up to the promises made, reward the effort with return business and be bold enough to ignore the lure of a small saving in product cost that ultimately may prove troublesome to the degree all savings are lost. Especially if your goods are “On Backorder”.