Did you hear the joke about the Late Shipment?
The most important part of the last joke is the delivery!
Puns aside, Service level in supply chain terms means what percentage you want to deliver on time to the customer. In simpler terms, is the product or service there when a customer needs it. A life saving medicine needs to be available at every time of day. A candy bar might not. Every supply chain manager wants to have a 100% service level, each business needs to make a decision on what is acceptable to the customer, for example, the candy bar might be at 75% and the medical equipment would be at 99%. This means that the material for the medical equipment would be available 99/100 and there would be one day where it isn’t available.
Higher service levels are necessary when
No substitution is available
Service level influences buying behavior (If I can get it from somewhere else, I will)
The outcomes of failure can be Life and Death
Substitution
Just like in sports, when the first player is tired or injured another player can come off the bench to play energized and ready to win! We offer the same thing in supply chains!
You can see this in the grocery store. If a medium sized box of cereal is not available you might just pick a larger one. Alternatively there are somewhere around 25,000 other choices of cereal, oatmeal, breakfast bars, or frozen breakfast products someone could choose to eat for breakfast. Hungry yet?
If there is legitimately no substitute except by competitors, the service level has to go up to meet customer expectations! Is there really a substitute for your favorite chocolate sugar coated crunch bomb cookie cereal?
Service Level influences buying behavior
This is a complicated way to say, people choose the service that performs the best. In the auto parts industry several catch phrases include talking about having the right parts at the right place at the right time. This is because of three potential factors of auto part repair. They can be expensive, fragile, and oftentimes urgent. This isn’t always the case, but think about vehicle emergencies. If the part isn’t available, someone will continue to search until they find something to get their vehicle working!
This means the store with the best service level wins!
The Outcomes of Failure are Life and Death
This phrase can be taken quite literally in the supply chain. Imagine you are responsible for the supply chain for a hospital. Next, imagine the situation where you do not have any surgical gloves, tools, or anesthesia. Probably not a great situation for the next emergency surgery patient or your career!
Hospitals and similar industries have high service levels, because a stockout could be catastrophic.
Consider the service level you need today! Then simulate it with RSI!