The 100% Service Level (Supply Chain Antipattern)
- The Foundations of Supply Chain (Lecture 1.1)
- The Quantitative Supply Chain in a Nutshell (Lecture 1.2)
- Product-Oriented Delivery for Supply Chain (Lecture 1.3)
- Programming Paradigms for Supply Chain (Lecture 1.4)
- 21st Century Trends in Supply Chain (Lecture 1.5)
- Quantitative Principles for Supply Chain (Lecture 1.6)
- Bullwhip effect
- Containers
- Copacking
- Cross-docking
- Drop shipping
- Decision-driven optimization
- DDMRP
- Deliverables (Quantitative SCM)
- Economic Drivers (Quantitative SCM)
- Initiative (Quantitative SCM)
- Kanban
- Lean SCM
- Manifesto (Quantitative SCM)
- Micro fulfilment
- Product Life-cycle
- Resilience
- Sales and Operations Planning (S&OP)
- Success (Quantitative SCM)
- Supply Chain Management (SCM)
- Supply Chain Scientist
- Test of Performance
- Third Party Logistics (3PL)
- Backorders
- Bill of Materials (BOM)
- Economic order quantity (EOQ)
- Fill Rate
- Inventory accuracy
- Inventory control
- Inventory costs (carrying costs)
- Inventory Turnover (Inventory Turns)
- Lead demand
- Lead time
- Min/Max inventory method
- Minimum Order Quantity (MOQ)
- Phantom inventory
- Prioritized ordering
- Reorder point
- Replenishment
- Service level
- Service level (optimization)
- Stock-Keeping Unit (SKU)
- Stockout
- Accuracy
- Accuracy (financial impact)
- Accuracy gains (Low Turnover) Formula
- Backtesting
- Continuous Ranked Probability Score (CRPS)
- Cross-entropy
- Forecast Value Added
- Generalization
- Pinball loss function (quantile loss)
- Probabilistic forecasting
- Quantile regression
- Seasonality
- Time-series
- ABC analysis (Inventory)
- ABC XYZ analysis (Inventory)
- Erlang C (call center staffing)
- Time-series forecasting
- Prioritized Inventory Replenishment
- Safety stock
- Supply Chain Antipatterns
- Devil's advocate
- The Non-Euclidian Horror
- The 100% service level
- The Jedi initiation
- Naked forecasts
Why would you settle for doing something well when you can achieve perfection?
Category: management
Achieving a 100% service level, in order words, 0% of stock-outs or delays, is a fantasy that is unfortunately still chased by too many companies. From a purely mathematical perspective, as future demand is uncertain and unbounded, achieving a guaranteed 100% service level would require an infinite amount of inventory; which is hardly tractable.
Fundamentally, inventory optimization is a trade-off between the cost of inventory and the cost of stock-outs. No matter what forecasting method is used, the result is the same: nothing short of infinite inventory can mathematically guarantee zero stock-outs.
When dealing with such situations, it’s important to put a price tag on stock-outs - possibly a very high price tag if it makes sense from a business perspective - and to start balancing the costs. As extra inventory brings diminishing returns, an equilibrium needs to be found to optimize the return on investment (ROI) for your company, but it won’t be at 100% service level.