A target service level is the point where the expected cost of a shortage equals the expected cost of having excess units.

Question

Quizplus · Accepted Answer

This statement defines the concept of target service level in inventory management, where the goal is to balance the cost of stockouts with the cost of holding excess inventory. The target service level is the level of inventory that balances these costs, and it is expressed as a probability of meeting customer demand during the lead time. When the target service level is achieved, the expected cost of a shortage equals the expected cost of having excess units, which represents the optimal inventory level for the business.

A Target Service Level Is the Point Where the Expected