Analyze backorders to improve the accuracy of your inventory forecasting. For a more advanced forecasting system, the ROI usually occurs in 12 to 18 months, based on your reduction in backorders and improved turnover.
Takeaway tip: Review your customer order fill rate; you don't want to be out of stock or overstocked. Here's an example of backorder costs: A typical catalog with a 20 percent backorder rate averaging two items per order, processed 200,000 orders for a total of 400,000 units of merchandise. But with 20 percent backorders, 40,000 customer orders were on backorder. Estimating backorder costs on the low end at $7.37 per order, the catalog would have to absorb $294,800 to make up for those backorders.
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Analyze backorders to improve the accuracy of your inventory forecasting. For a more advanced forecasting system, the ROI usually occurs in 12 to 18 months, based on your reduction in backorders and improved turnover.
Takeaway tip: Review your customer order fill rate; you don't want to be out of stock or overstocked. Here's an example of backorder costs: A typical catalog with a 20 percent backorder rate averaging two items per order, processed 200,000 orders for a total of 400,000 units of merchandise. But with 20 percent backorders, 40,000 customer orders were on backorder. Estimating backorder costs on the low end at $7.37 per order, the catalog would have to absorb $294,800 to make up for those backorders.