What are the best ways to measure customer service level in Inventory Management?

1 Definition of customer service level

Customer service level is the percentage of orders that are fulfilled on time and in full, without any backorders, shortages, or stockouts. It is calculated by dividing the number of orders that meet these criteria by the total number of orders received in a given period. For example, if you receive 100 orders in a month and 95 of them are delivered on time and in full, your customer service level is 95%.

3 Factors that influence customer service level

Customer service level is determined by multiple factors that are relevant to inventory management practices, such as demand forecasting, inventory policy, inventory accuracy, lead time, safety stock, and fill rate. Demand forecasting involves predicting customer demand for products in the future. Inventory policy determines how much and when to order or produce products. Inventory accuracy is used to track and control inventory levels and locations. Lead time is the amount of time it takes from ordering or production to delivering the product to the customer. Safety stock is the extra inventory kept to buffer against demand and supply uncertainties. Fill rate is how much of the customer's order can be fulfilled from available inventory.

4 Methods to measure customer service level

When measuring customer service levels, the type of business model, industry, and customer preferences all play a role. Common methods include the order fill rate, which is calculated by dividing the number of orders that are fulfilled from stock by the total number of orders received in a given period. Additionally, there is the line fill rate, which is determined by dividing the number of order lines that are fulfilled from stock by the total number of order lines received in a given period. The case fill rate is also used and is calculated by dividing the number of cases that are fulfilled from stock by the total number of cases received in a given period. Furthermore, the item fill rate can be measured by dividing the number of items that are fulfilled from stock by the total number of items received in a given period. Finally, the perfect order rate is calculated by multiplying the order fill rate, on-time delivery rate, order accuracy rate, and order quality rate.

5 How to choose the best method for your business

Choosing the best method to measure customer service level for your business depends on your objectives, resources, and customer expectations. You should consider the level of detail, the trade-off between cost and service, and the customer preference. For example, line fill rate can provide more insight into your inventory performance and customer satisfaction than order fill rate, but it can also require more inventory investment and management. Additionally, item fill rate may be more relevant for customers who order individual items or small quantities, while case fill rate may be better suited for customers who order bulk or large quantities. Ultimately, the best method should be aligned with your customer needs and expectations to influence their perception of your service.

6 How to improve your customer service level

Improving your customer service level requires a continuous improvement process that involves analyzing your current performance, identifying the root causes of any gaps or issues, implementing corrective actions, and monitoring the results. To achieve this, you should strive to improve your demand forecasting accuracy by using historical data, market trends, seasonality, promotions, and customer feedback. Additionally, you can optimize your inventory policy with inventory models such as EOQ, ROP, or safety stock. Furthermore, consider enhancing your inventory accuracy by using barcode scanners, RFID tags, or inventory software. Reducing lead time can be accomplished by negotiating with suppliers, streamlining production processes, or outsourcing logistics functions. Moreover, increasing safety stock requires taking into account demand and supply variability, lead time variability, and desired service level for products. Lastly, fill rate can be improved by balancing inventory availability and turnover and prioritizing high-demand or high-margin products.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?