Last updated August 14, 2023
What is the service level?
The service level is a measure indicating how well a company is serving its customers. In other words, how much of the customer demand a company can fulfill, typically measured as a percentage.
How to measure service level?
There are multiple ways of measuring the service level:
- The percentage of placed orders that are delivered on time in full (OTIF)
- Number of line items delivered on time (sometimes referred to as )
- With a certain lag accepted.
To measure service level, businesses typically calculate the ratio of successful deliveries to total deliveries, expressed as a percentage. A successful delivery is defined as one that meets the customer's requirements in terms of both quantity and timeliness. The formula for service level is:
Service Level (%) = (Number of Successful Deliveries / Total Number of Deliveries) * 100
How service level is used to improve the business?
Setting targets for service level that should be achieved for different categories is crucial to get the most out of the service level. This is then translated to how much buffer there is needed. Should be calibrated with actual numbers coming in.
There will however often be a shadow element in this number due to the number of orders that a company does not register. These reasons could include:
3 orders have been placed with a total of 10 watches split by 7 on the first order 2 on the second and 1 on the third. The inventory is 9 watches. The two first orders are fulfilled.
So the service level is 66.6%.
How is it used in the Hakio platform?
In the Hakio platform we provide the user with the possibility to set target service levels based on the ABC classification of products.