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Lead time is the delay between the time the reorder point (inventory level which initiates an order [8]) is reached and renewed availability. Service level is the desired probability of meeting demand during the lead time without a stockout. If the service level is increased, the required safety stock increases, as well.
Because, contrary to the variations of the service level, the service level does not only reflect the stockout event but also the amount backordered, it is widely used in industrial practice. Also, by the definitions, comparing service levels we have α ≤ β {\displaystyle \alpha \leq \beta } whenever the probability of zero demand equals 0.
A sequential single-echelon approach forecasts demand and determines required inventory for each echelon separately. Multi-echelon inventory optimization determines the correct levels of inventory across the network based on demand variability at the various nodes and the performance (lead time, delays, service level) at the higher echelons. [17]
If the inventory level is , each unit of demand above is lost in potential sales. This model is also known as the newsvendor problem or newsboy problem by analogy with the situation faced by a newspaper vendor who must decide how many copies of the day's paper to stock in the face of uncertain demand and knowing that unsold copies will be ...
In a base-stock system inventory position is given by on-hand inventory-backorders+orders and since inventory never goes negative, inventory position=r+1. Once an order is placed the base stock level is r+1 and if X≤r+1 there won't be a backorder. The probability that an order does not result in back-order is therefore:
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A higher service level will call for capacity that can supply a higher daily rate than the average over a long range. This will likely affect the resource productivity and inventory levels. A greater mix on the line is able to provide a higher level of service for any given level of resources and inventory.
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