Free tool
Inventory service level calculator
Turn a cycle service target into a safety-stock Z score and see what that target means over a year.
Your inventory service level
Cycle service level is the chance that one replenishment cycle avoids a stockout. It is not the fill rate of units shipped on time.
Z score
1.645
- Target cycle service level
- 95%
- Stockout chance per cycle
- 5%
- Expected stockout cycles per year
- 0.6
- Average interval
- 20 months
- Safety stock
- 37 units
The normal-demand model assumes a known spread of lead-time demand. Intermittent or very lumpy demand needs a different approach.
The formula
Z = inverse standard normal CDF(cycle service level)
Expected stockout cycles/year = (1 − service level) × replenishment cycles/year
Safety stock = Z × standard deviation of lead-time demand
- Cycle service level
- Chance of no stockout in one replenishment cycle, not unit fill rate.
- Z
- Standard-normal multiplier for the chosen probability.
- Lead-time demand SD
- Variation in units demanded during the wait for stock.
Worked example
- At 95% cycle service level, the normal Z score is 1.645.
- The chance of stocking out in one cycle is 5%.
- With 12 cycles per year, expected stockouts are 0.05 × 12 = 0.6 cycles per year, about one every 20 months.
- At 22.45 units of lead-time demand spread, safety stock is 1.645 × 22.45 = 37 units when rounded up.
When it applies
- Products whose lead-time demand is reasonably approximated by a normal distribution.
When it breaks down
- Intermittent and lumpy demand does not follow the normal-demand assumption.
- Cycle service level does not describe the fraction of units shipped immediately.
Common mistakes
Treating a cycle as a year
A 99% level means one stockout per hundred cycles on average, not necessarily one each year.
Confusing it with fill rate
Fill rate measures units served, while this calculation counts cycles with no stockout.
Setting 99.9% on every SKU
The buffer grows steeply near 100%. Set the target to the product's actual cost of running out.
Questions
What is service level in inventory management?
Cycle service level is the probability that one replenishment cycle finishes without a stockout.
What does the service level in inventory represent?
It represents the share of replenishment cycles expected to avoid a stockout under the demand model.
What Z score corresponds to 95% service level?
Approximately 1.645 under a normal-demand model.
Is service level the same as fill rate?
No. Service level counts cycles with no stockout; fill rate counts the share of units served immediately.
Can I target 100% service level?
A normal-demand model would require an infinite buffer for exactly 100%, so this calculator caps targets at 99.9%.
Related
Published by Skuvelo. Results are estimates computed from the figures you enter, not a reading of your own sales or stock.
A calculator answers once. Skuvelo keeps answering.
This tool computes one number from what you type. Skuvelo computes it continuously, for every SKU, from your own sales and stock.