Service Level Definitions

Service level metrics often confuse planners. This is dangerous — especially if you deal with inventory targets — as using different definitions will result in very different numbers and KPIs. This article highlights the main types of service levels, illustrate them with examples, and discuss their pro and cons — no more confusion.

This article is an extract from my book Inventory Optimization: Models and Simulations.

Agostino dei Musi — The Academy of Baccio Bandinelli in Rome Source

Inventory optimization is about finding the optimal amount of inventory that maximizes profits and minimizes cost. The one million dollar question is: how much stock do we need to reach this optimal spot? On the one hand, based on the service level that we want to deliver to our clients and, on the other hand, based on the magnitude of the demand and supply fluctuations that our supply chain is facing.

A Framework for Inventory Optimization