Backorders occur when the demand for a good or service surpasses what the company is able to supply. It is often the result of too many orders coming in for the same product. When there are orders for more of a product than what is available, those orders are placed on a backorder. This can create a backlog of orders that must wait on the next shipment of inventory to be made available before they can be fulfilled.

Backorders provide insight into a company's inventory management capabilities. Manageable backorders with a shorter turnaround time are a sign that the company is able to keep up with demand, meaning customers are likely to be satisfied. On the other hand, longer wait times and large backorders could signal a lack of supply, meaning customers may be dissatisfied and the company could be losing business to competitors.

Although backorders can be problematic, they do have their benefits. Companies that experience backorders may have the advantage of maintaining lower levels of inventory, resulting in reduced costs, such as storage fees. They are also subject to less obsolescence or theft, since they don't have large amounts of product just sitting around. Seeing that a product is in high demand and that backorders exist may also naturally create a form of marketing, as word of mouth will spread and encourage more customers to purchase the product.

In short, backorders are a sign of a product in high demand and give insight into a company's inventory management capabilities. They can be both a blessing and a curse, as they can reduce costs, create natural marketing, and result in fewer losses due to obsolescence and theft; however, they can also be a sign of a company that cannot keep up with demand and can lead to customer dissatisfaction as well as lose potential business to competitors.