Service level targets: how sure Narada aims to be

Every part has a target: how sure you want to be of not running out while you wait for a delivery. A higher target means fewer empty shelves, but more cash in stock.

Narada sets each part’s target from two things: its class, and its own money. You choose how the two combine on Your Numbers.

Input	Where it comes from	What it decides
The part’s class: A, B or C	Its sales value	The floor its target cannot go under
The class floor	Your Numbers (95%, 90%, 85% to start)	How safe each class must be
The part’s money answer	Its price, its cost, your holding cost and lost-sale share	Whether it is worth aiming higher
How targets are applied	Your Numbers	Which of the two wins

A, B and C: how parts are ranked

Narada ranks parts by sales value: units sold times price, over a recent window. Parts that make up the first 70% of your sales value are A. The next 20% are B. The rest are C.

So A parts are your few big earners, and C parts are your long tail. A part with no recent sales value counts as B until it has some.

The window is Sales history used to rank parts A, B and C. It is 90 days unless you change it. A longer window keeps classes steady. A shorter one lets a part move class faster when its sales change.

The class floor

Each class has a floor on Your Numbers: Floor — A items, Floor — B items and Floor — C items. Narada starts at 95%, 90% and 85%.

A floor of 95% means: in 95 delivery waits out of 100, the shelf should not run empty. It is not the share of units you ship. On slow, lumpy parts, the share of units shipped is usually lower than the floor.

The money answer

For each part with a price and a cost, Narada asks: would one more unit on the shelf earn more than it costs to hold?

What running out loses: the margin on the sale, times the share of customers who go elsewhere rather than wait. That share is the Lost-sale share for the part’s class.
What holding one more costs: the part’s cost, times your holding cost, for the days it waits on the shelf. For a discontinued part, Narada counts this as costing more, because leftovers may never sell.

A cheap part with a good margin earns a high target. A part that costs a lot and earns little earns a low one. Narada keeps every money answer within sensible bounds, so no part aims at never running out.

Three ways to apply targets

You choose on Your Numbers, under How the class targets are applied.

Choice	What it does	Good for
The class target on every part (the default)	Each part aims at the higher of its class floor and its money answer	Simple to explain. No part goes under its floor
Spread by cost across the class	Cheap parts aim higher, costly parts lower, so the class still averages its floor with less money in stock	Less cash in stock for the same class result
Most money within your stock budget	Each part’s target comes from its money answer. One dial moves every part until the plan fits your stock budget	A real cash limit, or the most profit per dollar of stock

With Spread by cost, no part goes below Lowest target any one part can get when spread by cost. That starts at 80%.

With Most money within your stock budget, the class floors stop being promises. A thin-margin part can sit below its floor. Set Stock you want to hold for a real limit. Left empty, the plan holds what the default choice would hold, and moves it toward the parts that earn most.

What can’t Narada weigh?

A slow part that keeps a big customer. Its own margin looks small, but losing it could cost the customer. Tell us: it needs a floor of its own.
Rush deliveries and waiting costs. Your Numbers asks for them, but they do not change targets yet.

Check it yourself

Press Show on a line in What to Order. One step names the part’s target and says where it came from: the class floor, or the part’s own money.

What sets your safety stock
Your Numbers: every setting, explained.