There is a common misperception that you need to deliver 100% customer service. Many people believe if you have 100% customer service, it means you will have maximum sales and profit. This is not true, and I will explain why:

  • No stock-out (zero stock): Your customer is often not the final consumer, but only a stock point who will have some safety calculated into the order he gives you. Delivering a lower volume will hardly ever cause immediate problems: he will have some safety stock and will still have stock to deliver to his customers.
  • No loss of sales: Even if there is a stock-out somewhere in the chain, the consumer (the real customer) can still get the product from his normal shop, so there are no lost sales. Only if the stock-out lasts for a longer time, it will cause disruption in the supply to the final consumer. You do not loose sales on short stock-outs.
  • Very little financial effect: Even if there is a stock-out and loss of sales, this may have a minimum effect on your overall sales. The consumer may get the product from another store, or later when it is back in stock, or get an alternative product from your range.
  • Very costly (lower profit) to deliver at a high customer service level: To achieve a higher customer service level, you need to keep more inventory. There is an exponential relationship, which means that an increase by 1% from 95 to 96 % only means an increase of 6% of stock, but an increase from 98.9% to 99.9% means an increase of 35% of stock.
  • 100% is statistically impossible: You never know what the future will bring, and it is impossible to be prepared for every possible scenario. Therefore you cannot plan to deliver 100%, however you can achieve it.

See also: ⇒ Expertise: Replenishment Models

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