In the world of wholesale distribution, retail and pretty much any other business model, the number one goal is almost always customer satisfaction. Without satisfied customers a company cannot retain business and will eventually have to close shop. I recently came across an ongoing blog series from Arkieva that discussed this very topic. The blog article I discovered entitled, “Cycle Service Level Versus Fill Rate Service Level – Part One” brings up the topic of measuring satisfaction with the cycle service method. The first part of the blog explains exactly how a stock out occurs. It’s pretty simple. Whenever a product is not available on a shelf for a customer, this is when a product suffers from a stock out. The author of this blog goes on to explain this will result in 4 possibilities:
None of these are great outcomes for your business since you were unable to satisfy the customer 100%. At the end of the year you will be measured by your customer satisfaction. One of the items that will be considered and looked at will be the stock out percentage of each item. This is found by taking the number of days a stock out occurred on the item and dividing it by 365 (the number of days in 1 year). So if a stock out occurs 40 times on an item, then that item had a stock for 40/365 = almost 11% of the year.
This number is the cycle service level. As the blog points out it is not a very forgiving measurement. The blog describes the severity well by saying, “a product might have emptied five minutes before the restocking operation and it would still get a stock out for that day, even if no customer walked up to that shelf in those five minutes but in the absence of a continuous review system there really is no other choice.”
This is just one of the ways you can measure your service level. As illustrated, it is a very harsh number that does not take much information or variables into account. The next blog in this series promises to discuss a second way to think about service level: the fill rate service level which looks deeper into the stock on hand. I will share my thoughts on that post in my next blog post.