In this article we discussed service level being set in a way that drives planning.
http://spplan.wordpress.com/2008/04/05/service-level-planning/
However, what we do not discuss in that post, is where the service level is set. We will cover this topic this post.
Setting Service Level
Service level can be set at different intersections. The following intersections are commonly asked for:
- At the product location
- At the group location
- At the product location customer
- At the group location customer
These are the most frequently requests areas to set service level. This is how supply planning typically understands service level, however, it is not the way that contract development interprets service level, and it is not actually how service levels are pertinent to customers. Customers do not think of a service level at a product location, but rather think of a service level in two different ways:
- The service level provided to them at all the locations that they consume items from the contract provider (can apply to both finished goods and to service parts)
- The availability or “uptime” of their equipment (applies exclusively to service parts)
This is a service level that is not the same as the internal service level goals that the contract provider sets at locations in their supply network. To being this analysis, let us look at how the vast majority of supply chains setup service levels.

Who Is The Ultimate Consumer of Service Level?
It is important to consider that the ultimate consumer of the service level is not the internal supply network, but is – to borrow an overused cliche- “at the end of the day” the customer. This brings up the problem of how service level contracts can flow through the supply chain in a way that positions the supply chain to meet these contracts. What is actually desired is a way to set service levels per contract and then to have software that allows the planner to “close their eyes” and decide the appropriate service level per customer product location. The graphic below describes what is the actual desired state of a company which is aiming for the ability to perform supply planning in a way that matches differentiated service levels.

Harmonizing Systems for Service Level Planning
To often contract development uses one software application, and supply chain planning uses another system. The problem is that this disconnects planning from contract development, which means that sales can end up signing into contracts that are either not competitive, or which under-price the contract they are not aware of the fully loaded costs that they are committing to. Secondly, deprived of the service level planning system, contracts lacks the insight into the incremental costs of new customers. This is because a new customer can not be considered in isolation, but must be considered in light of the incremental costs to the supply network. Contract development can then decide how they want to price this new business (either allocating full costs, or allocation incremental costs to the contract), however they are in a far better position if they know what it is.

Contract Development as Customer of Supply Chain Planning and Vice Versa
In this way, the contract development department is a customer of supply chain planning in that planning provides them with up to date parameters and costs, while planning is a customer of contract development in that contract development provides them with service levels per contract. Planning uses a system which is active or production, while contract development uses essentially a copy of the system which is off-line, and run in simulation mode. This way contract development does not interfere with production. However, it is important that periodically the production system data overwrite the contract development instance so that contract development is working with a recent copy of “reality.” Any capable inventory optimization software has the ability to easily perform this copy, and it is a normal part of system’s maintenance.

Simulation is what allows multiple instances of a database to be created, and to inter-operate flexibly with the application logic. It is one of the great advantages of planning systems, although the full capabilities of simulation are very rarely tapped into by companies.
Does the Present Solution Include this Capability?
Very few software vendors have this capability, so what many businesses are doing is using terminology such as inventory optimization and multi-echelon management, but selecting software which cannot support this terminology. Secondly, many executives have no idea that software exists that can do this, so they miss out completely on being able to enable their businesses to operate in this way.

Conclusion
A lot of companies need to evaluate their business goals if they include inventory optimization or service level planning, and spend more energy in determining if their present solution can meet these lofty goals. These two terms are very specific and are not simply more advanced forms of inventory management.











