Service levels in Supply Chain Management
Consider that a finished product is made up of five inventoried component parts. If the service level were 90 per cent or 0.9 for each item, then the probability of having all items in stock at any one time would be (0.90)5 = 0.60. In other words, four times out of ten the assembly foreman would not be able to complete an assembly! Hence a system where shortages are an inherent feature and not caused by 'someone's mistake'.