A Short Guide on Service Level Metrics and Service Level Planning
Large amounts of behavior variability exist from the time a customer issues a purchase order to the time the supplier’s truck arrives to the customer and the customer inspects the goods to ensure they received what was ordered and there are no damages. For an enterprise to continually improve, it must measure key metrics during this process. A company should measure if the quantity shipped was the quantity the customer requested, did it ship on time, and did it arrive on time. The three essential metrics that should be monitored are unit fill rate, on time in full, and perfect order.
Unit Fill Rate: Is the percent of the quantity of a customer’s order that shipped on time. This metric measures the quantity and time from when the order shipped, not from when the customer placed the order. The measurement is done this way due to the supplier having more control over when the order ships rather than when it arrives. However, it is important to note this measure is not terribly important to the customer as it is silent on customer arrival time and quantity.
On Time in Full (OTIF): This metric is similar to the unit fill rate except it only gives credit for an on-time order based on arrival at the customer location. In other words, it no longer uses the time when an order ships, but when it arrives. Like unit fill rate, OTIF measures the order quantity to determine “in full”. OTIF is considered a better metric as it measures the service level that the customer observes.
Perfect Order: This metric expands OTIF further and typically includes the measurement of whether the order arrived damage free and if the order invoice and labeling were correct.
Knowing the different metrics is only part of the equation when working with service levels. Service level planning must be continually accomplished. Some basic steps for planning service levels include setting an agreed upon and common definition of service levels metrics, determining the current service levels and identifying overstocked and under-stocked items.
Common definition: An agreed upon definition of service levels and service level metrics must be defined before beginning any improvement journey. For example, a sales team and operations team may define service levels differently which will produce different behavior and different results across the organization. A good starting point to estimate service level is the probability that an item will be in-stock when it is needed considering different cycle and lead times to process and deliver the item to the customer.
Current Service Levels: This step is simple, if you don’t know where your current service levels are, you can’t know how to get where you want to be. It’s important to determine a benchmark to understand how well current inventory stocking policies are meeting expectations on a cumulative, as well as item level.
Identify overstocked and under-stocked items: Technology is available that continually analyzes node, lane, route and item behavior to set a benchmark and determine which items run the risk of stocking out and which items may be overstocked relative to company and customer service levels goals.
At TransVoyant we provide these continuous global supply chain behavior and actionable insight solutions. As an example, our Service Level Insights continually monitor the past, present and future behavior of customers, suppliers, logistics service providers, nodes, lanes and routes to identify normal and anomalous behavior in the global supply chain along with individual sales and purchase orders causing poor service level performance. The value of TransVoyant’s Service Level Insights is that they lower cost to serve with identification of root causes of service level impacts, increase fill rates for customers, increase supplier performance for on-time delivery and on time and in full, and increase revenue with understanding of backorder and reorder behavior.
For more information on how TransVoyant can assist with your service level strategies please email firstname.lastname@example.org