In e-commerce, the service level is an important measure of success. It shows how well your inventory management is performing and how reliably you can meet customer demand. A high service level means you can almost always deliver what customers want, directly impacting revenue, customer satisfaction, and your competitive position.

In short: 5 tips to improve your service level

Want to get started with improving your service level? These 5 tips will help you on your way:

• Perform an ABC analysis and focus on your A-products.
• Map the turnover rate of products and match stock levels accordingly.
• Use forecasting and inventory planning to steer purchasing.
• Monitor supplier lead times and order proactively.
• Phase out low-value products that don’t contribute to your service level.

What is the meaning of the service level and why is it important?

The service level indicates the extent to which a company succeeds in meeting customer demand. If you have a service level of 100%, this means that your customers can always purchase the product they want. On the other hand, a service level of 95% means that for every 100 visitors to your webshop, 95 can buy the product at any time.

You can calculate the service level using the following formula:

Service level = (number of items in stock / total number of items in the assortment) × 100%

Why is the service level important?

A service level says a lot about your product availability and has a direct impact on customer satisfaction, retention and the profitability of your business. If you don't have control over your service levels, you may experience lost sales, which can lead to:

• Loss of revenue
• Negative customer reviews
• Opportunities for competitors
• Stagnant or declining business growth

Customers expect fast and reliable delivery. By improving your service level, you can strengthen your competitive edge and boost customer loyalty.

Why is it difficult to keep your service levels under control?

Maintaining stable service levels is a challenge for many e-commerce businesses. Once you lose control, the impact can be quick and costly. Think of missed sales, lower revenue, and unhappy customers who turn to competitors. Staying on top of your service levels is crucial to avoid stockouts and maintain your reliability. But what makes it so difficult?

1. Incorrect data

Without complete and accurate data, you lack the insights needed to make the right purchasing decisions. This can lead to overstock, tying up capital in products that don’t sell, or shortages, leaving your bestsellers unavailable when customers want them.

2. Purchasing too little (or the wrong products)

When you don’t have a clear view of sales data and trends, you risk ordering too little or investing in the wrong products. This results in missed sales opportunities, dissatisfied customers, and wasted shelf space and budget on items that don’t move.

3. Lack of automation

A manual purchasing process, for example using Excel, is time-consuming and error-prone. Orders may be placed too late, incompletely, or not at all. Adding automation to your purchasing process helps you stay organised, save time, and work with up-to-date data so orders go out on time.

4. No visibility into lead times

The lead time is the time between the order and delivery. When the lead times of your suppliers are longer than expected, you will experience delivery problems and the chance that products are often out of stock increases.

5. Not accounting for seasonal patterns

Sales volumes fluctuate throughout the year. If you fail to anticipate peak periods, you risk missing out on revenue. Order early when you know busy periods are coming, but remember: your competitors will likely do the same, which can cause supplier lead times to increase.

How do you determine the optimal service level?

Determining the optimal service level requires careful consideration of several factors, including investments in inventory and minimising lost sales. Here are some steps that may help:

Determine the necessary investment to grow

As an entrepreneur, you must be prepared to invest in your inventory to avoid lost sales. By classifying your stock with an ABC analysis, you can categorise your products and find out what your fast- and slow-moving items are. This knowledge enables you to develop a plan to increase the turnover rate of products and improve the service level.

Determine the safety stock

It is important to find a good ratio in which inventory costs, purchasing costs and costs due to lost sales remain as low as possible. By accurately calculating safety stock, you can protect your business against unexpected fluctuations in demand and ensure your service levels.

5 tips to improve your service level

Improving service levels requires a combination of strategic planning and operational execution. Below you find five practical tips to improve your service level:

1. Perform an ABC analysis

By categorising products based on their revenue and profitability, you can optimise inventory management and ensure product availability. Focus on the products that contribute most to your bottom line. With Optiply, you can instantly see which A-products must always be in stock and which C-products can be ordered less frequently.

2. Map the turnover rate of products

Analysing the turnover rate gives you insight into fast- and slow-moving products. This enables you to better align stock levels with customer demand and plan replenishment orders at the right time. Optiply’s reports might show, for example, that Product X sells only four times a year while Product Y sells weekly, helping you adjust purchasing patterns accordingly.

3. Maintain an inventory planning

A systematic approach to forecasting, demand planning, and replenishment is essential for maintaining a high service level. By using inventory optimisation software, you can accurately match stock levels to customer demand. Optiply automatically calculates the optimal reorder moment based on historical data, seasonal patterns, and supplier lead times.

4. Monitor supplier delivery times

Keeping a close eye on supplier lead times helps you avoid delays that negatively affect your service level. Discover, for example, that Supplier A consistently delivers three days late and adjust your orders proactively. Optiply automatically tracks these delivery times and incorporates them into purchasing advice so you always order on time.

5. Phase out products that do not contribute to the service level

Products with low demand or low margins take up unnecessary space and capital. Think of items that sit in storage for months and only generate a small fraction of your revenue. By phasing these out, you can focus on products that are essential for maintaining a strong service level. 

Optiply flags slow movers for phasing out, allowing you to free up budget and warehouse space for more profitable items.

Use data to determine and improve service levels

Real-time data can make all the difference when it comes to setting and maintaining your service levels. By using purchasing and inventory optimisation software, you can identify trends and seasonal patterns early on. This helps you avoid unnecessary inventory costs that can tie up your cash flow, while ensuring you have the right products available at the right time.

The key is being able to dynamically adjust your stock levels to current customer demand. A high service level can be the deciding factor in a competitive e-commerce market. 

With Optiply, you not only gain insight into your service levels, but also get the tools to actively improve them. This gives you a significant advantage over your competitors, helps you structure your inventory management, and ensures customer satisfaction.

Curious how this works for your business? Calculate the expected savings of inventory optimisation software with our calculator or request a free demo.