What is service level?
The service level of an item represents the probability you want to have of not going out of stock. A higher service level will result in a higher amount of safety stock being recommended for the item in the forecast. A service level set at 50% will recommend the sales projection for the item with no additional safety stock added. The service level can be set anywhere between 50 to 99%. It is best to set a higher service level for your most popular/most important items that you do not want to risk going out of stock.
Service level can be modified at any time, on the company level or item level. We suggest modifying service level around peak selling seasons.
Below is a general guideline we recommend for setting service level:
- Best selling SKUs: around 90-95%
- Mid flow SKUs: around 80-90%
- Lower selling SKUs: around 70-75%
Items with a smaller lead time can be set lower as you will have more time to react to sales if needed.