Performance Measures for Supply Chain Management (back to catalog)

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...Suppose we set inventory levels so that on average we maintain a 95% Line Item Fill Rate,3 and suppose there are 14 line items on a typical order. Then what is the probability that a typical order will be filled completely, without delay? Looking at our average 95% line item fill rates, if we had only two lines on an order, then the probability the first item is in stock is 95%, and the probability the second item is in stock is also 95%. To fill the total order we need to multiply these probabilities:

Probability of complete order fill for 2-line order = .95 * .95 = 0.9025 or 90.25%.

With 14 items we multiply the probabilities for all 14 items:

Probability of complete order fill for 14-line order = (0.95)14 = 0.4877 or 48.77%.

The probability of complete order fill for a 14-line order is below 50%! The figure below shows the order fill rate corresponding to a 95% line item fill rate, based on the number of items in the order:

Figure 2: Order Fill Rate
(Given 95% Line Item Fill Rate)

This figure should convince you that if there are a large number of items on a single customer order, then the chances are good that it won't be filled completely...

(Footnotes are numbered as they are in the module)
3 To implement this you could follow the procedure in Chapter 8 of Bonini, Hausman and Bierman, "Quantitative Analysis for Management", McGraw-Hill, 1997, to determine the corresponding safety stock levels. (back)

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SCM105 Specifications

Title: Performance Measures for Supply Chain Management

Rating: 4.3 / 5  (1106 ratings)

Total Reading Time: Approx. 1 - 2 hours (for average readers)

Word Count: Approx. 11,000 words

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Certificate: Counts toward Fundamentals of Supply Chain Management

Datasheet:  Download

Contents

  1. Introduction
  2. Alignment of Metrics with Business Strategy
  3. Service Metrics - Build-to-Stock
  4. Service Metrics - Build-to-Stock (continued)
  5. Service Metrics - Build-to-Order
  6. Inventory Metrics
  7. Speed Metrics
  8. Financial Metrics
  9. Bullwhip Metric
  10. "Bad" Metrics
  11. Applying Metrics Across the Entire Supply Chain
  12. Conclusions
  13. Test Your Knowledge
  14. Feedback
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