Service level
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is service level?
Service level, in inventory planning, is the target probability that an item will not run out before its next replenishment arrives. Planners use it to decide how much safety stock to carry: a higher target needs more.
How it works
A 95% service level means stock is expected to run out in about one replenishment cycle in twenty. Going from 95% to 99% costs more safety stock than going from 90% to 95%, which is why targets are often set by item class. Some companies use “service level” loosely to mean fill rate or OTIF, so check which is meant.
Service level example
A buyer sets a 98% service level for A items and 90% for C items, so the ERP suggests more safety stock on the fast movers customers can’t do without.
Related terms
- Safety stockSafety stock is extra inventory a distributor keeps to cover unexpected demand or late supplier deliveries, so it doesn’t run out before the next shipment.
- Fill rateFill rate is the percentage of ordered goods a distributor ships straight from its shelves on the first delivery, before any backorders arrive.
- ABC analysisABC analysis is a way of ranking inventory items by importance, such as sales or gross profit, and sorting them into classes A, B and C.
- StockoutA stockout is a situation in which a distributor has none of an item available to sell when a customer wants it.
