Do you measure your actual service-level performance (ASL) for each month? Each quarter? Each year?
Of course, there is no single “right answer” to this question. However, the ASL time frame for your business must find the right balance of the two factors we’ll talk about here. And keep in mind – these factors are in opposition, so balance is critical!
- Responsiveness: As you analyze your ASL, it may tell you that you need to change something – safety stock, supplier, logistics, etc. Certainly, the more quickly you see the need to change, the shorter the time ASL may be at risk.
- Change Indicators: Typically, your ASL analysis considers two indicators that a change may be needed:
- You compare ASL to a target,
- You look for trends – typically, but not necessarily, downward – compared to previous ASL results.
When the ASL is below target and/or it is inexplicably trending in the wrong direction, you start looking for causes and what you should change.
How are these two factors in opposition? Let’s say that many of your ASL SKUs or items experience intermittent demand – options, spares, etc. If you measure your ASL each month, that month may offer only 20 or so business days of potential demand activity. For instance, an intermittent-demand item with a target 95% service level may see demand activity only 20% of the time, or 4 out of the 20 days. From a statistical perspective, it may be possible for random variations in demand and lead time to cause stockouts on one of those days. This might result in an ASL of 75% for this item, suggesting perhaps that safety stock should be increased.
However, if this item’s statistically-expected lower range of ASL variation is, say, 68%, attempting to change safety stock (or any other change) would be tampering. In this case, making a change would sub-optimize this item’s overall performance.
The combination of short ASL time frames, intermittent demand and significant demand and/or lead-time variation can actually create a situation in which an item’s statistically-expected ASL is anywhere from 0% to 100%! In this situation, ASL offers no meaningful change indicators. The best option for this item is to measure its ASL over a longer time frame. Granted, you lose some responsiveness, but you have something meaningful to respond to.
Do you know the statistically expected ASL lower (and upper) ranges for your key inventory items?
Do you know what ASL time frame is best for your business?
We look forward to your comments. If you need help with answering these two questions, please visit our website (just click on the graphic button at the top of this page or Click Here), and give us a call. We will be happy to help!