Definition: Service Level expresses the probability of being able to service incoming orders (or demand) within a reference period without delay from stock on hand.
The implicit assumption within this statement: It is not economic to always be able to service an order from stock on hand. Deciding on the right service level for a certain product is essentially balancing inventory costs vs. the cost of a stock out. Service level is therefore an important variable for calculating the appropriate safety stock; the higher the desired service level, the more safety stock needs to be held