Supply Chain Service Level: Formula and How to Improve It
May 27, 2025
May 27, 2025
The service level is a key performance indicator (KPI) for any B2B distribution business. It measures your company’s ability to fulfill customer orders in terms of product availability and on-time delivery. A high service level leads to improved customer satisfaction, increased loyalty, and a stronger competitive edge.
In this article, we break down what service level means, how to calculate it, and—most importantly—how to improve it to boost your distribution performance.
Service level refers to the percentage of customer orders delivered in full, with the correct items, and on time.
In short, it measures your ability to fulfill orders accurately and promptly, without delays or errors.
A service level above 95% typically indicates strong inventory control and reliable logistics operations.
Several types of service levels reflect different stages of your supply chain:
All of these are interconnected—a weak link in one area can negatively impact your overall performance.
For B2B distributors, maintaining a high service level is crucial because it directly affects:
The service Level formula is straightforward:
Service Level (%) = (Number of Orders Delivered on Time / Total Number of Orders) x 100
Example: If you receive 500 sales orders in a month and deliver 480 of them on time:
Service Level = (480 / 500) x 100 = 96%
A 96% rate is solid, but there’s still room for improvement through better inventory planning and order management.
Note: A closely related metric is the fill rate. Fill rate measures how much customer demand is fulfilled directly from available stock. It reflects the efficiency of your inventory management—specifically your ability to avoid stockouts and fulfill orders without backorders.
A high service level indicates a healthy supply chain—products are available, orders are delivered on time, and customers are satisfied. It’s a strong signal of reliability and operational efficiency.
A low service level usually points to mismatches between demand and fulfillment capacity—typically caused by out-of-stock items, delayed deliveries, or process inefficiencies.
Service level should never be evaluated in isolation. It needs to be considered alongside other key performance indicators (KPIs).
A high service level doesn’t always mean effective inventory management. For example, a distributor might maintain high service rates by overstocking or frequent reordering without optimizing for EOQ (Economic Order Quantity)—leading to higher acquisition and storage costs.
Tracking multiple KPIs provides a more comprehensive view of supply chain performance. It’s also crucial to analyze service level by product category, supplier, or customer segment, as each can have unique constraints and optimization opportunities.
Several factors can contribute to a low service level—often rooted in a misalignment between customer demand and your operational capacity.
The most common culprit is stockouts—when products are unavailable at the time of order. Stockouts typically result from poor demand forecasting, inaccurate inventory data, or ineffective supply planning.
Understocking may reflect a conservative cost-saving strategy, but it often comes at the expense of service quality.
On the other hand, overstocking can tie up working capital and increase carrying costs—especially if you're holding slow-moving or unwanted SKUs.
Other key contributors to low service levels include:
The goal is to identify bottlenecks at every stage of the chain and apply targeted, sustainable improvements.
Improving your service level isn’t just about holding more stock—it’s about balancing availability, operational costs, and customer satisfaction. Here are seven proven strategies to help you get there:
Maintain buffer stock to absorb demand fluctuations and reduce the risk of stockouts—without overcrowding your warehouse.
Segment your inventory based on product value or turnover. his helps prioritize high-impact items and allocate resources more effectively.
Leverage historical sales data, seasonality, and market trends to predict future demand and optimize replenishment.
Work with dependable suppliers and track their service performance. Consistent, on-time deliveries from your vendors are crucial to maintaining your own service level.
Choose high-performing carriers and monitor shipments in real time to maintain a strong transportation service level.
A solution like Stockpit helps you automate inventory management, supplier restocking, and order prep—reducing human error and boosting your service level.
Inventory management software lets you:
Strong cross-team communication—from sales to purchasing to logistics—helps align priorities, prevent errors, and deliver better service.
Service level isn’t just another logistics metric—it’s a strategic lever for scaling your B2B distribution business.
By improving inventory control, supplier reliability, and logistics efficiency, you’ll boost customer satisfaction, strengthen your competitive position, and drive sustainable growth.
With Stockpit, you gain a powerful, user-friendly tool to monitor performance and consistently improve your service level.
Don’t let logistics be a bottleneck—turn it into your competitive edge.
Say goodbye to stockouts! Get your inventory valuation, monitor the inflow and outflow of products and keep track of your inventory.
