Service level
Service level measures the performance of a system. Certain goals are defined and the service level gives the percentage to which those goals should be achieved. File rate is different from service level.
Examples of service level:
Service level is used in supply chain management and in inventory management to measure the performance of inventory replenishment policies. Under consideration, from the optimal solution of such a model also the optimal size of back orders can be derived.
Unfortunately, this optimization approach requires that the planner know the optimal value of the back order costs. As these costs are difficult to quantify in practice, the logistical performance of an inventory node in a supply network is measured with the help of technical performance measures. The target values of these measures are set by the decision maker.
Several definitions of service levels are used in the literature as well as in practice. These may differ not only with respect to their scope and to the number of considered products but also with respect to the time interval they are related to. These performance measures are the Key Performance Indicators (KPI) of an inventory node which must be regularly monitored. If the controlling of the performance of an inventory node is neglected, the decision maker will not be able to optimize the processes within a supply chain.
The α service level is an event-oriented performance criterion. It measures the probability that all customer orders arriving within a given time interval will be completely delivered from stock on hand, i.e. without delay.
Two versions are discussed in the literature differing with respect to the time interval within which the customers arrive. With reference to a demand period, α denotes the probability that an arbitrarily arriving customer order will be completely served from stock on hand, i.e. without an inventory-related waiting time (period service level):
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