Originally published July 9, 2021, updated August 12, 2025.
Think of your supply chain like a championship relay race. Each runner (i.e., the supplier, manufacturer, distributor, retailer) must pass the baton flawlessly. A stumble, hesitation, or dropped handoff costs precious time and momentum.
Efficiency means training every runner, perfecting each exchange, and moving as a single, well-coordinated team toward the finish line. Like the relay race, supply chain efficiency depends on each stage and teammate, from supplier to manufacturer to distributor. One fumble, delay, or misstep can cost time, money, and customer satisfaction.
In a time of challenges and disruptions, brands and operational managers are always looking for new ways to improve their supply chain, whether it be fresh ideas to analyze business data, reduce risk and working capital, optimize costs, or improve predictability. Mitigating risk has taken center stage amongst the disruptions: The National Association of Manufacturers (NAM) Manufacturers’ Outlook Survey for the fourth quarter of 2023 revealed that, in the last two years, 86.2% of respondents have worked to de-risk their supply chains.
But, with so many moving parts, it can be challenging to know what to prioritize for the most efficient process. This guide will explain the essentials of supply chain efficiency, how to improve supply chain processes, and choose the right partners for optimal and resilient operations.
What is supply chain efficiency?
Supply chain efficiency refers to a company’s basic logistics and fulfillment performance standard. Supply chain efficiency is measured by how well resources, time, and costs are optimized to meet demand without waste or delays. Key KPIs often include:
- Order cycle time
- On-time delivery rate
- Inventory turnover
- Perfect order rate
- Supply chain cost as a percentage of sales
An optimized supply chain lowers operating costs, enhances customer experiences, increases margins, and supports growth. When brands offer quality products that meet a need, getting them to their final destination requires fine-tuning every step, including reverse logistics, outbound schedules, receiving procedures, and order processing, to ensure speed, accuracy, and efficiency.
What is an efficient vs responsive supply chain?
What is the difference between an efficient supply chain and a responsive supply chain? Efficiency is all about reducing the number of resources, effort, hours, and costs associated with the supply chain. While an efficient supply chain is certainly important, it cannot be the sole focus of an organization or business when it comes to successful supply chain management. Analyzing the responsiveness of your supply chain is an integral part of supply chain management as well.
A responsive supply chain is flexible and agile, allowing brands to react and adapt quickly to new and unexpected issues, seamlessly overcome obstacles, and evolve gradually to deal proactively with issues that may come up. Responsiveness is all about getting your supply chain to respond purposefully and promptly to changes in the marketplace and consumer requests while staying resilient in the face of challenges. To be successful as a retailer, you need a supply chain that is both efficient and responsive.
How to measure supply chain performance
Here are some of the top ways to measure your supply chain efficiency and performance:
- Inventory investment. Inventory investment impacts a company’s cash flow and profit, so every business should invest in finished goods, work-in-progress, and raw material inventory to make sure they can meet their targets. Common issues like inaccuracy in demand forecasting, fluctuation in demand, a lack of manufacturing capacity, and long lead times can come up and throw a wrench into your processes. Calculate inventory investment as a percentage of your net or gross revenue based on the customer service targets, expected demand, and lead time of an item.
- Inventory efficiency. Measuring inventory efficiency is also important. Start by calculating inventory turns, which is how often the inventory turns over each year, as a ratio of the annual cost of goods sold (also known as COGS) and the average inventory investment per month.
- On-time supplier delivery. Calculate the on-time supplier delivery performance based on the difference between the actual and agreed delivery times. The on-time supplier delivery metric can be stated as the number of hours late or early, or the on-time percentage, which is the percentage of overall delivery times that the supplier delivered within the agreed delivery time. This is a crucial metric to measure, as any late deliveries can significantly affect a company’s delivery and manufacturing schedule, as well as overall lead times and operating costs.
- The accuracy of forecasting. Forecasting accuracy is also an essential metric to measure because it can impact every single aspect of your supply chain. Calculate the forecasting accuracy by product or product family, as well as a 30- to 90-day outlook.
- Lead time. Lead time refers to the amount of time needed to complete a particular process, project, or task. We recommend measuring the lead time of your most important business processes, including the supply chain process, since the lead time can affect your inventory investment and overall supply chain costs. Consider the amount of time needed for inspection, shipping, receiving, moving, transportation, and processing.
- Unplanned orders. Unplanned orders refer to orders that go above the original capacity allocation, and this metric is calculated as a percentage of the total number of orders. While unplanned orders can be beneficial from time to time, they can also quickly become a problem when there are internal process breakdowns, poor management practices, and an inaccurate demand forecast. Unplanned orders in these cases can lead to a lot of money spent on raw material and capacity shortages, extra machine setups, the delay of already scheduled orders, and re-scheduling.
- Schedule changes. Schedule changes are typically caused by unexpected events or process changes, including staffing and quality problems, equipment breakdowns, and material shortages.
- Overdue backlog. Production and material constraints, machine breakdowns, quality issues, and poor scheduling can lead to overdue or excessive backlogs. This metric is usually calculated as a percentage of the overall revenue. Some amount of backlog is normal for many companies, but it’s important to take time to consider and calculate the ideal level of backlog for your business.
- Material availability. There are a number of causes that lead to problems with material availability, including machine breakdowns, quality or personnel problems, poor supplier performance, a lack of information, and wrong inventory information. Poor material availability can lead to rescheduling of orders, downtime, and work stoppages. That’s why it’s so important to measure your material availability as a metric so that you can identify and address any issues.
- Gross profit margin. Gross profit margin is usually measured as the overall revenue minus the cost of goods sold (COGS). Gross profit margin is an important metric used to figure out a company’s efficiency in converting inputs into outputs.
Quick-view table: KPIs for supply chain efficiency
| Metric | Formula | Description |
| Inventory Investment (%) | (Value of Inventory on Hand / Net or Gross Revenue) × 100 | Proportion of revenue tied up in inventory; consider service targets, demand, and lead time. |
| Inventory Efficiency (Inventory Turns) | Annual COGS / Average Monthly Inventory Investment | How many times inventory is sold and replenished each year. |
| On-Time Supplier Delivery (%) | (# of On-Time Deliveries / Total Deliveries) × 100 | Share of supplier shipments arriving within agreed windows; can also track hours early/late. |
| Lead Time | Order Completion Date − Order Start Date | Total elapsed time including inspection, shipping, receiving, movement, transport, and processing. |
| Unplanned Orders (%) | (Unplanned Orders / Total Orders) × 100 | Orders above capacity allocation; high values indicate planning issues. |
| Schedule Changes (count) | Count of Changes in Period | Frequency of plan changes due to breakdowns, shortages, staffing, or quality problems. |
| Overdue Backlog (%) | (Value of Overdue Orders / Total Revenue) × 100 | Revenue tied up in overdue work; align with your acceptable backlog threshold. |
| Material Availability (%) | (Available Materials / Required Materials) × 100 | Materials on hand when needed to avoid reschedules and downtime. |
| Gross Profit Margin (%) | [(Revenue − COGS) / Revenue] × 100 | Profitability after direct costs; proxy for conversion efficiency of inputs to outputs. |
Steps to improve supply chain efficiency and performance
Here are some of the best ways to improve supply chain efficiency and performance:
Increase the visibility of the supply chain
Supply chain visibility refers to an organization’s ability to track the various parts of a product as they move from suppliers to the end destination. Visibility can be improved by enabling suppliers to check inventory levels in real time, allowing them to plan ahead and deliver exactly what is needed, when it is needed. This also allows key team members to access inventory information directly, enabling them to develop strategies without repeated back-and-forth communication. Providing colleagues, employees, and suppliers with this level of visibility supports better inventory planning and stronger communication.
Automate the most important parts of the supply chain process
While it may not make sense for every organization to automate every step when working to achieve supply chain efficiency, automating critical aspects of the supply chain can significantly boost efficiency. It is beneficial to involve planning teams, executives, and warehouse managers in discussions about potential automation opportunities. Once automation is in place, every automated component must be well-maintained and managed. This requires ongoing education and training for planning teams, suppliers, and warehouse managers, as well as regular inquiries and check-ins to ensure automated systems remain effective.
Engage the IT department
Managers often consult IT departments only when something goes wrong or when new software is being implemented. However, engaging IT teams regularly can uncover potential logistics and fulfillment technology upgrades that improve supply chain processes. IT departments understand evolving technologies in the industry, making their expertise valuable for identifying solutions that help the organization stay ahead of the competition.
Examine and assess training programs
When supply chain efficiency issues arise, it may be necessary to review internal training programs. This can involve scheduling meetings with department managers or directors to evaluate current procedures, processes, and materials. These reviews ensure that training remains up to date and focused on productivity. It is also important to verify that employees are not being tasked with unrealistic or exhausting demands, as this often leads to burnout and operational issues.
Implement a comprehensive project plan
Improving supply chain efficiency is an ongoing process, requiring a thorough project plan to guide continuous improvement. A strong plan can help identify risks and opportunities, establish communication channels, develop distribution strategies, support investment decisions, promote improvement projects, and facilitate cross-functional decision-making. It also ensures that every investment and decision aligns with both supply chain objectives and broader business goals.
The Kase difference
Supply chain efficiency doesn’t happen by accident; it’s the result of precise planning, strong partnerships, and continuous improvement. From enhancing visibility to refining automation, training, and project management, every improvement compounds into faster delivery times, lower costs, and happier customers. The right partner can accelerate that progress. Connect with a Kase supply chain expert to optimize operations, strengthen resilience, and build a supply chain efficiency strategy tailored to your business goals.
