“I need a 100% service level” – a typical expectation of both management and commercial departments. Purchasing & operational divisions however, have a much better understanding of service levels and appreciate that attaining 100% is a utopia. In practice, determining an appropriate service level is an extremely complicated undertaking.

Optimize your Service levels

For many businesses, the criteria for setting service levels is unclear and as a consequence, service level targets are set as a given figure (based on a quick and vague analysis). Furthermore, the quality of the service level is difficult to measure as the effects only emerge after a certain period of time. It is only when an inappropriate service level has a negative impact on safety stock inventory for example, that the service levels are reviewed and quickly adjusted (without any real analysis). Thus, service levels are not reviewed regularly. Should this worry you? Only if you think that service levels are a powerful instrument that have the potential to impact both your profit margins and overall business performance.

Do service levels really have such a powerful influence on your margin? And can a well-thought out service level provide your organization with a valuable asset?

Margin-boost

When describing a service level in its purest form, you are describing your company’s goal. It is a translation of your business strategy to your inventory strategy: you are deciding to what extent you want to satisfy your customer’s needs based on your stock capacity.

The service level is an operational translation of the maximum profit you want to generate.

When defining a service level, a number of components have to be taken into consideration including turnover, capacity, customer demand and cost. These components and their relations can be defined on an article level. For example, knowing that the cost component has an exponential character, an appropriate service level on an article level can result in a large margin boost at an assortment level.

Finding an optimal service level thus results into a margin boost on an article level, which in turn leads to a large margin increase at an assortment level. In addition to this, the insight into your assortment’s margin performance can also lead to further opportunities to increase margins over time.

Insight into internal processes

The advantage of a well-adjusted service level goes beyond margin increases as a thorough analysis also provides greater insight into your internal processes. By internal processes, we mean the processes that should mitigate both the supply chain factors and the demand chain factors.

A service level reflects your ability to meet demand and the capacity you are willing to use to satisfy this demand. If it is based on the right criteria, it should fit with your company’s strategy and the capacity of its processes. If your capacity is not based on the right criteria, it may not have the desired effects. This occurs because certain supply and demand influences are not taken into account and as a consequence, this can cause a margin decrease. In that case, simply increasing or decreasing your service level can make the issue even worse.

Your service level should be a reflection of your internal processes and the maximum profit they could possibly generate. From the service level and its effects, we can derive:

• To what extent the internal processes can handle the service level
• What this process input means for every individual article

You should ask yourself which element you want to change; the inventory process or the service level. Either way, one should be adapted around the other. However, there is a risk that you adapt the wrong one, which can lead to a decrease in quality of both elements. This in turn can have severe consequences!

In conclusion, the right determination of your service level can have a considerable effect on your margin, but it can also give your insight into the extent to which your internal processes and their capacity can be improved and aligned to your organizational goals.

How to get started?

The determination of a quantitative fact, based on quantitative data only, requires a formula. The correct determination of a quantitative fact, based on more than quantitative data alone, requires a perspective. The correct perspective.

With regards to the perspective of a service level, we mainly mean the way the cost and turnover components are approached. We should look at the relevant process input for each article. Superficial quantitative criteria like turnover (ABC analysis) and the cost of safety stock inventory should also be taken into consideration. However, we have to accept that there are also other, less quantifiable criteria in play. For instance; think of the actions your customers will take in the event of stock outs, is the expected turnover guaranteed?

The quantification of the appropriate service level is a company-dependent exercise, in which we should be able to determine the process input per article. Quantifying these criteria is not an easy thing to do. However, it is possible!

Would you like to have a more elaborate guide about how to determine the right service level for your organization? Click here to find out how you can maximize your availability through establishing more effective service levels!

Following a hugely successful period of growth, Europe's leading inventory optimization specialist, Slimstock, has debuted on Gartner’s Magic Quadrant for Supply Chain Planning System of Record. As part of this research, Gartner identified that Slimstock achieved above average on overall customer satisfaction. The research also noted that customers have above average satisfaction with the business benefits delivered by Slimstock's inventory management solution, Slim4.

Gartner identified Slimstock for not only its significant presence in Europe but also its expanding international reach including the United States, Canada, and Mexico. Furthermore, according to Gartner, "references are particularly satisfied in areas such as its roadmap, domain expertise, in-house implementation services, total cost of ownership, as well as the frequency and ease of upgrades." Slimstock CEO, Eric van Dijk notes, “It's good to see that our focus on delivering tangible operational improvements is recognized by both our customers and the analysts at Gartner.”

The Magic Quadrant examines vendors that provide supply chain planning system-of-record solutions. Using multiple data sources to analyze and assess each vendor, the research from Gartner provides supply chain and IT leaders another point of reference while evaluating and selecting a supply chain planning system.

“We believe that our position in the quadrant reflects Slimstock’s ability to execute as promised, where others may fall short” says Jeff Woodmansee, VP Sales USA. “Particularly after a year with more than 100 new customers around the globe, we are proud of the recognition and look forward to more great things to come.”

This graphic was published by Gartner, Inc. as part of a larger research document and should be evaluated in the context of the entire document. The Gartner document is available upon request from Slimstock.

Defeat your assortment demons

5 Steps to help you redefine your approach to inventory

It is no secret that for many businesses, 80% of the turnover is generated by just 20% of the assortment. Given that such a large proportion of the assortment seemingly offers such little value to the business, you would be forgiven for focusing all of your attention on the best performing lines. However, inventory decisions should not be taken lightly and businesses should strive to manage their entire assortment as effectively as possible.

How can you maximize the performance of your assortment while minimizing unnecessary costs? This article highlights 5 top tips to help boost the profitability of your assortment, minimize risk and help you manage your inventory more effectively.

Striking the balance

Unless you have a complete understanding of your assortment, how can you be sure that you are making the right inventory decision? After all, while a slow moving line may seem like a costly waste of space in your DC, for certain customers, these items could well be the main reason they buy from your business. Equally , if an item offers only a minimal return in terms of customer benefit or profit, is it worth investing time and money ensuring this item is always available?

Although overall availability is seen as one of the key performance indicators when it comes to inventory management, supply chain managers have to draw a line somewhere. Through finding the balance between investment in inventory and service levels, businesses can exploit the laws of Pareto principle in order to adopt a more proactive approach to managing the entire assortment.

The right criteria for the right classification

Should a slow moving item really be managed the same way as a fast moving line? When you consider that every item will have a unique demand pattern and margin, applying the same inventory strategy across the entire assortment is neither profitable nor logical.

This is where inventory classification comes in: through categorizing items depending on their strategic importance to your business, you can begin to adopt a more tailored approach to manage each category. This in turn enables you to focus resources on the areas which require the most attention.

For many businesses, a well-structured ABC analysis can provide the insight required to categorize items effectively. While the process on conducting an ABC analysis allows you to gain a greater understanding of the assortment, it is essential that the parameters of the analysis are well aligned with the business’ overall objectives. Furthermore, it is also important that it is clear who has the final say on what parameters should be used and that these are well communicated with the business’ decision makers. After all if your business is focused on customer satisfaction, categorizing items by margin alone will do little to help the business achieve its goals.

How you define the boundaries within your assortment will depend heavily on what KPIs are most important to your business. Essentially, there are two main objectives which determine the KPIs: on one hand the focus can be on the profit margins of an item or the turnover. Alternatively however, the financial elements can be put to one side and customer satisfaction in the form of order lines or transactions can be used as the foundation on which to build KPIs. However, in addition to this, the following questions must also be raised when determining which category each item falls into:

• What items should be included? Which items should not be grouped?
• What are the basic criteria for ABC analysis?
• Dynamic or static? How often should ABC be recalculated?

How much do you really know about your assortment? Do you know which items offer the greatest return or which are most important to your customers? Equally, do you know which items are costing you money? This article highlights 5 top tips to help boost the profitability of your assortment, minimize risk and help you manage your inventory more effectively.

Acting on insights

Once the boundaries of an ABC analysis have been defined and agreed upon, your assortment can be categorized into different groups depending on strategic importance. From service levels to stocking decision, the insights provided by the ABC analysis should be used as a driving force to shape your assortment and optimize the performance of all your items.

Here are 5 steps you can adopt today to help reduce inventory levels, increase availability and ultimately help ensure your business achieves its overall corporate goals.

Step 1: Differentiate your service level

In the context of assortment management, a service level is the target % of all ordered pieces of an item that can be delivered from stock at the first requested delivery date. Given that A-line items are those which are most important to the business, whereas C-line items are likely to be slowing moving items which offer a much lower return, there is little point in setting the same service level targets.

For A-line items, the service level target should be the highest of the three categories. On the other hand, considering that B and C class items are likely to have a lower overall impact on your business’ strategic goals, setting an excessively high service level target could result in unnecessarily costs yet deliver only a small return. As a consequence, it is essential that service levels are considered carefully in order to ensure that they are both realistic and relevant to the goals of the business.

Step 2: Determine the right stock levels

Once you have defined the desired service level for each classification, you can continue to re-assess your inventory policy. Given that the level of insurance inventory will differ depending on the importance of each item, it is enviable that A-line items are likely to have a greater requirement for safety stock as going out of stock could cost the business dearly.

However, this is not simply a case of investing heavily in safety stock for your best performing lines while ignoring C-line items. While insights from a well-structured ABC analysis can be used to guide a differentiated approach to service levels, there are still a number of factors that have to be taken into account. For instance, could certain items have a political impact on the business which require special attention? Or are there already contractual or customer obligations in place?

Through carefully considering the inventory requirements of each category, your business can optimize stock levels in order to ensure that, where required, demand is covered with safety stock while cutting excess stock across the rest of the assortment.

Step 3: Make more informed stocking decisions

In addition to optimizing inventory levels, the insights from conducting an ABC analysis may identify further opportunities to refine the assortment. For instance, some C line items may actually not be worth stocking at all as they simply do not offer a significant enough margin to justify holding on stock. Alternatively, there may be a number of items which are currently non-stocked which would actually be better to keep stocked at all times. This is particularly true for items where there is either a lengthy lead time or low level of supplier reliability.

Through utilizing the insights from an ABC analysis to decide whether or not to change the stocking status on an item, you can boost customer satisfaction by ensuring the most important items are readily available. Equally, through using such insights to refine your assortment, you can remove items which do not contribute towards achieving the overall business goals. This in turn can help free up working capital which can then be reinvested elsewhere in the business.

Step 4: Optimize here, optimize there

With clear insight into which items have the biggest impact on your ability to achieve your strategic goals, you can prioritize areas which require the most attention. Whether this means taking time to re-negotiate lead time or order quantity with suppliers or develop more effective means of managing such items, the outcomes of the ABC analysis will aid you when structurally improving the way you manage your inventory.

When you consider that your A-line items are likely to be the best performing lines, negotiating more favorable lead times, or even better prices, could have a major impact. Likewise, for items which you identify as slow movers, the opportunity may arise to negotiate a smaller order quantity which in turn will result in you holding less stock.

While on an article level, these relatively minor developments may only seem to have a small impact, across the entire assortment, these can soon add up. In turn, such action can help improve overall availability, reduce inventory cost and generally improve efficiency across the board. Through utilizing the ABC analysis, you can clearly see exactly where you need to prioritize time and resources in order to deliver the most value to the business.

Step 5: Monitor, report, review

Given that the previous 4 steps could have large potential impact on the performance of your business, it is important to monitor the effectiveness of inventory decisions in order to ensure you are moving in the right direction.

While overall stock value or overall availability could be used to compare year on year performance, unless you dig a little deeper, you will not be able to identify exactly which aspects of your assortment are performing well and which require more attention. Given that the service levels for each category are likely to be driven by very specific objectives, categorizing items according to ABC classifications is a powerful way to monitor the evolution of your assortment.

Through reviewing each category that arises as a result of the ABC analysis, you can gain a much clearer picture of how your assortment is performing. Consequently, this provides you with time to investigate potential problem areas and respond accordingly. Furthermore, these categories provide a solid basis on which to report such developments to other areas of the business.

Published by Slimstock, market leader in forecasting, demand planning, and inventory optimization

Since 1993, Slimstock has been synonymous with better demand forecasting, effective inventory optimization, clearer inventory analysis and continuous improvement of inventory reliability. Our customer base consists of over 650 companies worldwide, across a diverse range of industries, covering large, medium and small enterprises.

The business behind some of Britain’s leading kitchenware brands including Tala and ChefAid, has established a new benchmark by which all future supply chain projects will be judged. Following the success of a major project focused on improving both stock availability and efficiency this month, the leading kitchenware supplier, George East, has already started to realise the tangible benefits of their work with inventory management specialist, Slimstock.

With a broad range of products and an extensive customer base encompassing a number of well-known high street retailers, George East is one of the UK’s leading suppliers of kitchen and homeware products. Carl Debbage, Commercial Manager at George East explains: “Given the complexity of our global network of suppliers, coupled with the continuous growth of our assortment, it was vital that we took steps to improve both availability and service levels in order to keep up with the growing demand for our products.”

After seeing how Slimstock’s inventory management solution, Slim4, could help the business better manage seasonal demand and product lifecycles, the homewares specialist decided to join their parent company, Nedac Sorbo group, as one of 650+ other businesses to implement Slimstock’s inventory management solution, Slim4. Debbage goes on to add: “Although we have only been using the solution for a short time, I can already see how critical Slim4 has become for our operations.”

Since the project was first initiated in November 2015, the team at George East have already started to notice the business benefits. “Working with the team at Slimstock on what has been a highly complex project has been a pleasure. The expertise of the consultants at Slimstock has been evident throughout and it has been a great experience in how a project should be managed. Slimstock has helped us establish a new benchmark by which all future projects will be judged,” States Debbage.

Richard Evans, managing director at Slimstock UK goes on to add: “This has been an exciting project for everyone here at Slimstock and I am confident that our work with George East will help the business go from strength to strength.”

To help maintain and improve their market leading availability across their stylish range of bathroom furniture products, Roper Rhodes has taken a major step towards bolstering their position as the UK’s favourite independent bathroom specialist. Following the decision to partner with Slimstock, the bathroom specialist will utilise the inventory management expert’s supply chain solution, Slim4, to increase customer service levels and support the business' continuous growth.

With customers ranging from national merchant groups to local authorities, housing associations and plumbing contractors, Roper Rhodes has provided customers with a complete range of functional and stylish bathroom furniture for over 30 years. With the support of Slimstock, the UK’s favourite bathroom supplier will now utilise Slimstock’s inventory optimisation solution, Slim4, to modernise their approach to inventory management.

“In the past, we relied upon our ERP system to help manage our inventory. However, as the business has grown, we knew that this approach was simply no longer optimal,” explains John Wright, Operations Director at Roper Rhodes. With an already extensive range encompassing; sanitary ware, showers, taps and bathroom accessories, the business required a solution which could enable the team to forecast demand with greater confidence and thus, manage their ever-evolving assortment more effectively.

With the ability to anticipate demand with much greater accuracy, once Slim4 has been implemented, the team at Roper Rhodes can focus more of their time and attention on what really matters to their customers. “Given Slimstock’s extensive industry experience, flexibility and robust project methodology, it was obvious that they were the right partner for us,” adds John.

Richard Evans, Managing Director at Slimstock goes on to conclude: “As we embark upon this project, I am confident that our work with Roper Rhodes will help the business on their journey towards supply chain excellence.”

One of the world’s leading ferry operators Stena Line has decided to implement Slimstock's inventory optimisation solution, Slim4, to optimise the inventory of its central DC in Malmö. Onboard stores, restaurants and bars for more than 40 vessels are replenished from this DC and four regional DC's.

Stena Line provides ferry transportation services on its extensive route network of twenty routes covering North Europe and connecting ten countries. Last year, approximately 7.3 million passengers, 1.6 million cars and 2 million freight units were taken across the waters around Scandinavia, on the Baltic Sea, the North Sea and the Irish Sea.

The replenishment of the vessels is taken care of by Stena Line Onboard Services. This subsidiary and unit within Stena Line is responsible for the replenishment of the onboard shops, restaurants, cafés and bars. They are located in Malmö, with a purchasing team and a central warehouse. There are smaller DCs in Holyhead in Wales, Hoek van Holland in the Netherlands, Gdynia in Poland and Gothenburg in Sweden.

Stena Line decided to implement Slim4 to reduce inventory, improve efficiency and maintain the high service levels towards the vessels. The implementation will start in September and is planned to be finished before the end of the year. During the project an interface will be made between Slim4 and the ERP system Oracle JD Edwards.

The Turkish branch of the Carrefour supermarket chain, Carrefour S.A., has recently implemented Slimstock's inventory management solution, Slim4, to optimise inventory across all of their stores. With 6 DCs and 630 stores located across Turkey, Slim4 optimises both the inventory at the central distribution centres as well the replenishment of the stores.

From major hyper market stores with over 50,000 SKUs to smaller supermarkets, convenience stores and speciality shops, Carrefour S.A. offers a range of formats in Turkey. However, with 12 million SKUs in total, planners must ensure that products are distributed from the DC’s to the stores effectively. With the support of Slim4, Carrefour can now calculate the optimal order point for each product and location.

Extensive selection procedure

The team at Carrefour were searching for a solution to optimise their inventory and drive the replenishment process. However, it was important that the tool was compatible with the retailers existing SAP ERP system. Following an extensive selection procedure, Carrefour S.A. decided to go ahead with Slimstock’s inventory management software, Slim4.

First results visible

With the support of both the team at Slimstock and Selco, the local partner of Slimstock in Turkey, Slim4 was successfully implemented earlier this year. As highlighted by Önder Kaplancik, IT director at Carrefour S.A., the results are already visible with increased in-store availability: "We are very pleased with the way the project has taken place so far.” Önder continues: “Carrefour S.A. is open to referrals from other retailers and hopes that Slimstock can expand its presence in Turkey."

Slimstock: internationally active in retail

Slimstock specialises in helping supermarket chains and other retailers around the world optimise their inventory. Slim4 is designed to optimise both stock in the central distribution centre and inventory in stores. Internationally, there are references in France, England, Spain, Scandinavia, the Baltic States, Panama and Singapore, amongst others.