Service Level Optimization examples

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Service Level Optimization examples

The following examples illustrate how Service Level Optimization impacts the service level of products to achieve the selected objectives. The Safety Stock Optimization results for five products with initial service levels defined by a user as part of the Safety Stock Optimization run are provided.

In our initial Safety Stock Optimization run, we have five products with initial service levels as shown below:

Site Name	Product Name	Target Service Level	Service Type	Safety Stock	Safety Stock Cost	Coverage
DC	Product1	0.9	Type2	34	111.7808	6
DC	Product2	0.9	Type2	34	8.38356	6
DC	Product3	0.9	Type2	34	55.89041	6
DC	Product4	0.9	Type2	34	5.03014	6
DC	Product5	0.9	Type2	34	4.47123	6
MFG	Product1	0.8	Type2	0	0	0
MFG	Product2	0.8	Type2	0	0	0
MFG	Product3	0.8	Type2	0	0	0
MFG	Product4	0.8	Type2	0	0	0
MFG	Product5	0.8	Type2	0	00	0

Minimize cost example

We group Product1 to Product5 into a product group and call it ProdSet1. In the Service Level Optimization Parameters table, we set the objective to "Min Cost" (minimize the safety stock cost) with a Target Average Service Level of 0.90.

Site	Product Set	Period	Min Service Level	Max Service Level	Target Average Service Level	Inventory Budget	Objective Type
DC	ProdSet1	(ALL_Periods)	0.75	0.98	0.90		Min Cost

Service Level Optimization optimally selects the service level for each product to minimize the safety stock cost:

Site	Product	Target Service Level	Service Type	Safety Stock	Safety Stock Cost
DC	Product1	0.75	Type2	22	72.32877
DC	Product2	0.96	Type2	43	10.60274
DC	Product3	0.83	Type2	27	44.38356
DC	Product4	0.98	Type2	50	7.39726
DC	Product5	0.98	Type2	50	6.57534

Before Service Level Optimization, the total safety stock cost is $185.55. After service level optimization, the total safety stock drops to $141.29 while maintaining the same average service level.

Maximize revenue example

We use the same product set that groups Product1 to Product5. In the Service Level Optimization Parameters table, we set the objective to "Max Revenue" (maximize the revenue) with a Target Average Service Level of 0.90.

Site	Product Set	Period	Min Service Level	Max Service Level	Target Average Service Level	Inventory Budget	Objective Type
DC	ProdSet1	(ALL_Periods)	0.75	0.98	0.90		Max Revenue

With an objective of Max Revenue, Service Level Optimization will select higher service levels for products with a higher product price, while maintaining the target average service level:

Site	Product	Target Service Level	Service Type	Safety Stock	Safety Stock Cost
DC	Product1	0.98	Type2	50	164.38356
DC	Product2	0.98	Type2	50	12.32877
DC	Product3	0.98	Type2	50	82.19178
DC	Product4	0.81	Type2	26	3.84658
DC	Product5	0.75	Type2	22	2.89315

Maximize profit example

Again, we use the same product set that groups Product1 to Product5. In the Service Level Optimization Parameters table, we set the objective to Max Profit (maximize the profit) with a Target Average Service Level of 0.90.

Site	Product Set	Period	Min Service Level	Max Service Level	Target Average Service Level	Inventory Budget	Objective Type
DC	ProdSet1 (All)	(ALL_Periods)	0.75	0.98	0.90		Max Profit

With an objective of "Max Profit", Service Level Optimization will select higher service levels for products with a higher profit (revenue – cost), while maintaining the target average service level:

Site	Product	Target Service Level	Service Type	Safety Stock	Safety Stock Cost
DC	Product1	0.98	Type2	50	164.38356
DC	Product2	0.75	Type2	22	5.42466
DC	Product3	0.98	Type2	50	82.19178
DC	Product4	0.98	Type2	50	7.39726
DC	Product5	0.81	Type2	26	3.41918

Maximize average service level example

In this example, we use the same product set that groups Product1 to Product5. In the Service Level Optimization Parameters table, we set the objective to "Max Average Service Level" with an Inventory Budget (safety stock value) of $500,000.

Site	Product Set	Period	Min Service Level	Max Service Level	Target Average Service Level	Inventory Budget	Objective Type
DC	ProdSet1 (All)	(ALL_Periods)	0.75	0.98		500,000	Max Average Service Level

When the objective is set to "Max Average Service Level", Service Level Optimization will optimally select the service level for each product to maximize the average service level, within the budget constraint specified by the Inventory Budget. In this example, the maximum average service level is 92.8%:

Site	Product	Target Service Level	Service Type	Safety Stock	Safety Stock Cost
DC	Product1	0.78	Type2	24	78.90411
DC	Product2	0.98	Type2	50	12.32877
DC	Product3	0.92	Type2	36	59.17808
DC	Product4	0.98	Type2	50	7.39726
DC	Product5	0.98	Type2	50	6.57534

Last modified: Wednesday May 15, 2024

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