Service Level Optimization

Given a user-defined service level, Safety Stock Optimization determines the required safety stock levels at the facilities in the model while minimizing cost. In Safety Stock Optimization, the decision variable is the service time between echelons given a desired service level. Once the service time is optimized with the objective of minimizing total inventory holding costs, the coverage (or risk period) for each echelon is fixed. To learn more about Service Level Optimization, refer to:

• Service Level Optimization considerations
• Service Level Optimization examples

Service Level Optimization results are provided in the Service Level Optimization Summary table.

You must run Safety Stock Optimization before running Service Level Optimization as the safety stock placement decision of where to hold inventory needs to be determined prior to running Service Level Optimization. The goal of Service Level Optimization is to select the optimal service level for each finished good within a user-defined product set at a customer-facing site to achieve a specific objective. The objectives and corresponding constraints are as follows:

Service Level Optimization can only be run after Safety Stock Optimization is complete. During Service Level Optimization, the service time and coverage have to be fixed.

In addition, you must define one or more records in the Service Level Optimization Parameters table to define the objectives and constraints for a set of products. Apart from the objectives and constraints listed above, every product set also has minimum service level and maximum service level constraints. The optimal service level for each individual SKU has to fall within the range of min/max service levels defined.

For example, you can solve for maximum profit while adhering to target service level minimum and maximum values. Service Level Optimization parameters are specified per site-product set-period.

You select Service Level Optimization as a problem type on the Launch Pad. There are two selections related to Service Level Optimization:

• Service Level Optimization – When you select "Service Level Optimization", the Service Level Optimization process runs. Service Level Optimization requires that data has already been populated by Safety Stock Optimization.
• Safety Stock + Service Level Optimization – When you select "Safety Stock + Service Level Optimization", Safety Stock Optimization runs followed by Service Level Optimization.