Is 98% a good service level target?

It depends entirely on the SKU. For a critical, non-substitutable spare part with high customer impact, 98% may be too low, with 99.5% closer to the right answer. For a low-margin commodity with clean substitutes, 98% is often wasteful, and 93% to 95% can deliver the same customer experience at a fraction of the inventory cost. A flat 98% target across the whole catalogue produces an average that hides both failure modes at once, which is why segmentation by margin, criticality and substitutability matters more than the headline figure.