Demand factor Backlog of orders
In case where demand for your products exceeds supply, then orders of customers remain unfulfilled and you get backlog.
At the end of each quarter, half of any orders which remain backlog in the EU and Nafta areas will be cancelled by your potential customers. Those orders left for you to supply in the next quarter will be carried forward as a backlog to be cleared as soon as products become available.
In internet, if there is a shortage of product, no further orders can be taken. Hence, although there can be no backlog, there is a negative effect on your image.
Result of the excess of demand over supply in any case, it is lost revenue that you could get. In EU and Nafta market, you lose 50% of orders value (remaining 50% goes into your backlog). In Internet market, you lose 100% of orders value.
In addition to lost revenue you lose part of demand in the next period. Image of the company falls in the eyes of potential clients and they do not want to buy your products anymore. On average, demand will decrease by 25-30% of the backlog orders.
In addition to all troubles backlog orders will cause decreasing of goodwill of your company, which will automatically affect investment perfomance.
Considering the above, best strategy is to keep a small stock of products in warehouse in the event of a sudden increase of demand. But do not forget that in case of implementing MAJOR development in production, all stock of the product in the warehouse instantly become obsolete and will be destroyed at cost.