Green Living Innovation Institute
Purchasing and Supply Chain Management
Unit 7: Supply Chain Performance Measurement
Lecturer: Zebron Kabandama
2026
UNIT 7: PERFORMANCE
MEASUREMENT IN SUPPLY CHAIN
MANAGEMENT
1. Introduction to Supply Chain Performance
Measurement
Performance measurement in supply chain management refers to the process of assessing
the efficiency, effectiveness, and overall success of supply chain activities.
It helps organizations to:
• Monitor operational efficiency
• Improve decision-making
• Reduce costs
• Enhance customer satisfaction
• Achieve strategic objectives
• Maintain competitive advantage
Without performance measurement, organizations cannot determine whether their supply
chain is performing well or poorly.
2. Objectives of Supply Chain Performance
Measurement
The main objectives include:
1. Measuring efficiency and effectiveness
2. Identifying areas for improvement
3. Supporting strategic planning
4. Enhancing customer service
5. Reducing operational risks
6. Improving coordination among supply chain partners
3. Key Performance Indicators (KPIs) in Supply Chain
KPIs are measurable values used to evaluate performance.
A. Cost-Based KPIs
• Total supply chain cost
• Transportation cost
• Warehousing cost
• Inventory holding cost
• Procurement cost
B. Customer Service KPIs
• Order fulfillment rate
• On-time delivery rate
• Perfect order rate
• Customer satisfaction level
C. Efficiency KPIs
• Inventory turnover
• Order cycle time
• Lead time
• Capacity utilization
D. Asset Management KPIs
• Return on supply chain assets (ROSCA)
• Cash-to-cash cycle time
• Days of inventory outstanding
4. Inventory Performance Metrics
4.1 Inventory Turnover Ratio
Measures how many times inventory is sold and replaced over a period.
Formula:
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
Higher turnover indicates efficient inventory management.
4.2 Days of Inventory Outstanding (DIO)
DIO = (Average Inventory ÷ Cost of Goods Sold) × 365
Lower DIO means faster inventory movement.
5. Customer Service Performance Metrics
5.1 Order Fill Rate
Percentage of customer demand met without stock-outs.
5.2 On-Time Delivery (OTD)
Measures percentage of orders delivered on schedule.
OTD = (Number of On-Time Deliveries ÷ Total Deliveries) × 100
6. Financial Performance Metrics
6.1 Cash-to-Cash Cycle Time
Cash-to-Cash Cycle = Days Inventory + Days Receivable – Days Payable
Shorter cycle time improves liquidity.
6.2 Return on Investment (ROI)
ROI = (Net Profit ÷ Investment Cost) × 100
7. The Balanced Scorecard Approach
The Balanced Scorecard evaluates supply chain performance from four perspectives:
1. Financial perspective
2. Customer perspective
3. Internal process perspective
4. Learning and growth perspective
This ensures a holistic performance measurement system.
8. The SCOR Model (Supply Chain Operations
Reference Model)
The SCOR model measures supply chain performance across five core processes:
1. Plan
2. Source
3. Make
4. Deliver
5. Return
SCOR performance attributes include:
• Reliability
• Responsiveness
• Agility
• Cost
• Asset management
9. Benefits of Performance Measurement in Supply
Chain
• Improves operational control
• Enhances accountability
• Identifies bottlenecks
• Supports continuous improvement
• Improves supplier evaluation
• Strengthens strategic alignment
10. Challenges in Supply Chain Performance
Measurement
• Data inaccuracy
• Lack of integration across systems
• Poor KPI selection
• Resistance to change
• High implementation costs
11. Practical Example
Example:
A manufacturing company measures:
• Inventory turnover = 8 times per year
• On-time delivery = 92%
• Order cycle time = 5 days
Management decides to:
• Improve supplier coordination
• Reduce lead time
• Implement demand forecasting software
As a result, on-time delivery improves to 97% and inventory turnover increases to 10
times per year.
12. Summary
Supply chain performance measurement is essential for improving efficiency, reducing
costs, and enhancing customer satisfaction.
Organizations must:
• Select appropriate KPIs
• Use balanced measurement approaches
• Monitor performance continuously
• Align performance metrics with strategic objectives