Four Steps to Service Level-Driven Inventory Planning, from Supply Chain Management Review.
With Service Level-Driven Planning, organizations can find their inventory sweet spot. Here are the steps to get it right.
How much inventory is enough? How do you arbitrate across different viewpoints, weighing inventory investment against the impact of stocking out? Service Level has proven to be an objective metric that relates cost to risk, enabling the optimal allocation of scarce inventory dollars.
Service Level-Driven Planning (SLDP) enables organizations to find and agree upon their inventory balance point or “sweet spot,” where just the right amount of product or material is allocated to achieve required service levels over the replenishment lead time. Putting SLDP into practice is straight forward, subject to a few key requirements:
agreement upon a common definition of “service level,”
establishing service level targets for stocked items;
the ability to project the service level that will be achieved, given the committed level of inventory.
