Demands, Backorders, Service Level, Lost Sales and Effective Service Level

Nick T. Thomopoulos

IIT Stuart Graduate School of Business

Illinois Institute of Technology

IM 08

Abstract

The typical way service level is measured in industry is the demand filled over total

demand.

Unfilled demand becomes a backorder or lost sales.

Lost sales demand is often not known or measured by the management.

This paper shows how to estimate the lost sales demand and also shows how to measure an effective service level.

Tables are provided for easy reference and two examples show how to apply the results of this paper to industry situations.