Chapter 13. The Hierarchy of Horrors
At Federal Express, as in most companies, the company believed that it had reached a balance between customer service and cost. It was called the 95% rule.
A curve demonstrated that to improve on-time delivery beyond 95% was not economically valid and that to do so would increase the price of the service beyond what was acceptable to the customer. Conversely, to drop below 95% would cost customers. Therefore, 95% was considered the optimum service level.
This is also true of warehousing and inventory. To have an item available beyond a certain percent of the time would mean overstocking and is therefore not economically viable. Again, in the warehousing example, the cost of stocking products that move very slowly ...