Fill Rate Level – A More User Friendly Measurement

In my last blog post I discussed the harsh nature of using cycle service level as a measurement for customer service. This second blog, similar to the first, will discuss safety stock formulas and customer service, the backbone to any good business. This blog is a bit more business friendly. It gives an insight to your service level that is a bit more forgiving. It is useful to have an idea of your service level; it can be what makes or breaks a company. Cycle service level is just one measurement.

This second blog in this service level series, which this is based off of, discussed a different measurement called the ‘Fill Rate Service Level.’ This formula takes into account everything the cycle service does, and then some. It can be defined as: “the percent of demand that was fulfilled or straight out of inventory when the customer wanted it.” The article gives the example, “if the customer wanted 1000 units, and the business was able to deliver 800 units immediately, that would be an 80% fill rate. (By contrast, the cycle service level would be 0% on account of the resulting stock out).”Reckitt-Benckiser shoot for Ryder. (Davis Turner photos)

This type of service level is often used in a B2B environment. Usually companies buy in bulk and from several different lines. This method is able to take that into account before assessing the service level. As stated previously this method is not quite as blunt as the cycle service level. You are rated based on how much you are able to supply, not simply by a yes or a no. Instead simply labeling a product for stock out, you are able to see that some level of satisfaction was reached.

The article summarizes:

“In summary, let me describe some general suggestions on when to use which service level. As always, these are very basic rules of thumb and not to replace detailed analysis of your specific data. Also, one rule seldom applies to the entire business. Segmentation of data and using appropriate rules for specific segments is recommended.”

  • In the absence of continuous review of inventory: Cycle Service Level
  • Continuous review + Steady demand items: Fill Rate Service Level
  • Continuous review + unsteady or bulky or intermittent demand: Cycle Service Level

Have you experimented with multiple types of service levels? Do you find that one works better than the other? I would enjoy your feedback. Please leave your comments below.

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  • NS

    Yes, Fill Rate may be a better metric for tracking customer service but how do you calculate the optimal inventory level or the safety stock based on a desired fill rate? All the formulas I have seen are based on service level. The problem is that there is no closed form solution for a fill rate based safety stock calculation.

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