The desired service level is the key determinant of safety stock for finished goods because it directly influences how much stock is needed to meet customer demand without stockouts.
* Customer Satisfaction: Higher service levels ensure higher availability of products, leading to better customer satisfaction and loyalty.
* Demand Variability: The desired service level takes into account the variability in demand, ensuring that there is enough buffer stock to cover unexpected demand spikes.
* Inventory Costs: Balancing service levels with inventory costs is crucial. Higher service levels require more safety stock, which increases holding costs.
* Supply Chain Responsiveness: Setting appropriate service levels helps maintain a responsive and reliable supply chain, essential for meeting market demands efficiently.
References:
* Silver, E. A., Pyke, D. F., & Thomas, D. J. (2016). Inventory and Production Management in Supply Chains. CRC Press.
* Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation.
Pearson.