Dynamic Customer Service Levels: Evolving Safety Stock Requirements for Changing Business Needs

Abstract

Retail companies struggle to maintain the appropriate levels of inventory on promotional and seasonal items due to management pressure to never be out of stock. Dynamically changing desired service levels during promotions or seasonal periods will ensure accurate safety stock levels and reduce manual interventions. We simulate inventory policies introducing dynamic changes in desired service levels to determine the impact on inventory, stock outs, and fill rate. We show that dynamic service levels can reduce inventory and stock outs while maintaining the same fill rate as fixed policies. Having different service levels throughout the year contingent on business needs ensures that companies will have the right inventory at the right time.