What is a significant advantage of backordering for manufacturers?

The significant advantage of backordering for manufacturers is that it can lead to lower setup costs. Backordering allows manufacturers to maintain lower inventory levels since products are only made to meet demand as orders come in. This reduces the need for excess inventory, which can be costly to store, manage, and handle. By producing goods only after receiving orders, manufacturers are able to optimize their production runs, thereby minimizing setup and changeover costs associated with manufacturing processes.

Additionally, lower inventory levels associated with backordering can lead to better cash flow management, as capital is not tied up in unsold goods. This can help manufacturers allocate resources more efficiently, ultimately contributing to a leaner production process that can positively affect overall profitability.