2003_LSS Understanding the Cause of Back-Orders Preprint

2003_LSS Understanding the Cause of Back-Orders Preprint

Logistic systems transport parts between different production locations and to the customers, with the goal to supply the customer with the parts he needs when he needs it. Ideally, there are always exactly as many parts available at any given time as requested by the customer. If the demand temporarily exceeds the supply, a stock-out occurs, resulting in back-orders. Back-orders can be reduced by increasing inventory. The resulting improvement in customer satisfaction and sales however is offset by the increase in inventory and the time to market. This paper provides a method to understand the causes of back-orders and to improve the allocation of inventory with respect to stock-outs and inventory cost using the example of a in-plant logistic system.

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