Importance and Impact of Product Availability

The level of product availability is usually measured using the cycle service level or the order fill rate, and measures the fraction of customer demand that is satisfied from available inventory. Some firms refer to this as "customer service level" but we don't like that terminology - there are many, many metrics beyond product availability that can measure customer service (on time delivery, perfect order, etc). A supply chain can use a high level of product availability to improve responsiveness and attract or please customers, but that could require large inventories and the corresponding carrying costs. We believe an optimum level of product availability is one that maximizes a firms profitability.

The optimum level of product availability depends on the type of business, and where a particular company believes it can maximize profits. A grocery store will only have a few days of supply of any given product, and stock-outs occur frequently. Some high-end retailers focus on a very high level of product availability to focus on responsiveness - but they charge higher prices than competing retailers. In the e-commerce channel a customer can search the web and instantly switch to a different supplier if products are out of stock - which provides a huge incentive to maximize product availability; but competitive pricing is fierce on web channels.

Firms in different industries, and even firms within the same industry have different strategies and levels of product availability. Great firms must identify the factors that influence the optimal level of product availability. Once identified, this information can be used to determine the optimal level of product availability to optimize financial results.

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