Backlog

A backlog, in business and financial sphere, means a certain amount (usually large) of unfinished job tasks that have accumulated over a period of time and need to be completed. Depending on a type of business and a sphere where the business operates, a backlog might be represented by various things - unprocessed documents and applications make up a backlog in banking, in sales a backlog is usually a pile of unfulfilled or unshipped orders, and so on. The exact nature of uncompleted business is not essential for being considered a backlog, but a significant amount of a backlog matters.

Backlog meaning for business

If a company acquires a backlog in any form, it is a sign for investors. But to understand what exactly this sign means, an investor or a business owner should analyze the current situation and the whole premise of it, since a backlog might appear due to various reasons and indicate both inefficiency or a great potential of a business. But in any case, it clearly indicates that a company is currently unable to respond to the demand adequately, and some measures must be done to eliminate such a situation because otherwise it might affect the future income. A backlog is a sign of a company’s capacity being not enough to comply with the workload.

This might be caused by two substantially different reasons:

• Inefficiency of production or servicing, which might be due to some equipment problems, staff incompetence, business processes being poorly organized or conducted, or some of these things combined;
• A growing demand and rise of sales, which might be provoked by the product's remarkable quality or uniqueness, or by external factors such as word of mouth or a product going unexpectedly viral on the Net.

The first case is usually a bad sign for a business and requires immediate intervention to avoid huge losses. The second case is usually considered to be a positive signal, although the situation still needs to be controlled to minimize inconveniences for clients or customers, which are inevitable in case of existing backlog, as it requires more time to provide them with the needed product. It’s also important to remember that even a backlog caused by suddenly increased demand can cause blunder and troubles with forecasting and future planning, so many factors should be taken into consideration, especially if a company faces a backlog for the first time.

Another case of having a backlog, not linked to the previous causes, might happen within a company providing its services or goods in a certain period of time, often delayed. Such situations often incurs when a business is grounded on subscriptions, and a backlog in this case is caused not by insufficient capacity, but by a fact that a scheduled time hasn’t yet been reached.

Instances of Backlogs

A backlog might occur in any kind of company. Let’s imagine a print shop which normally has about 30 orders per week. The company tends to reduce costs by using cheaper disposables than those required by the equipment, and also has a high staff turnover. Those factors create a high chance of the equipment failure and impossibility to solve the problem quickly due to the lack of experience of employees. In its turn, it causes the slowdown in order execution, which enlarges an amount of unfulfilled orders. This creates a backlog of orders which is not connected with a growing demand.

It’s also possible to imagine another situation, in which the same company finds a method of achieving the same results faster or cheaper. This fact quickly becomes well-known, and in the run-up to elections, many candidates turn to the company to get their promotional materials. This also creates a backlog, but in this situation it is indeed caused by high demand. Still, the management needs to find a way to complete all the orders in timely manner to keep the new clients by either changing a production cycle, expanding the production, outsourcing some tasks, and so on, if there are plans to maintain a new level of workload for the production team.