Demand factor - Backlog of orders
In the case when demand exceeds supply, then some of the orders of buyers remain unfulfilled (backlog).
If you have backlog orders at the end of the period in EU or Nafta, then 50% of them will be canceled by clients and lost irretrievably. The remaining 50% of backlog orders are carried over to the next period as supply arrears and should be satisfied when the products appear in the EU and Nafta warehouses.
If you have backlog orders at the end of the period in Internet, then 100% of them will be canceled by clients and lost irretrievably.
The result of the excess of demand over supply is lost revenue that you could have received. In EU and Nafta markets, you lose 50% of backlog orders (the remaining 50% goes into your arrears on orders). In Internet market, you lose 100% of backlog orders.
In addition to lost revenue, you lose some of the demand in the next period. The image of the company falls in the eyes of potential customers and they do not want to buy your product. On average, demand will decrease by 25% of the number of 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 scrap price.
- There is no residual effect on demand from backlog of orders
- Dependence of demand on backlog of orders is expressed as a linear function
- The effect on demand from backlog of orders is equal for all markets and products
- The dependence of demand on backlog of orders is not influenced by competitors in the group
Automatic demand forecast based on backlog of orders is built into the Calculation model, which can be purchased in our store.