Inventory Service Level & Fill Rate

The inventory service level (α) is the probability that all customer orders in a given time interval will be completely delivered from stock on hand.

The inventory fill rate (β) is the proportion of total demand within a period which is delivered from stock on hand.

Fill rate (β) = 1 - (expected backorders / expected demand)

Allocation of Inventory Between Facilities

Fair share allocation is an inventory management method that provides each facility with an equitable distribution of available inventory.

The days of supply for each facility, DS, is calculated as follows:

DS = [AQ + Sum(Ij)] / Sum(Dj), where

  • AQ is the common amount of inventory to be supplied in total
  • Sum(Ij) is the total amount of inventory on hand in warehouse j
  • Sum(Dj) is the total daily demand for warehouse j

The amount to be allocated to each warehouse facility is given by:

Aj = (DS - (Ij/Dj)) * Dj, where

  • Aj = amount of inventory allocated to warehouse j
  • DS = days of supply for each warehouse
  • Ij = inventory in supply for warehouse j
  • Dj = daily demand for warehouse j