Supply chain KPIs that connect operations to profitability

A board-ready guide to metrics that improve EBITDA, resilience, and time-to-value.

Supply chains face constant disruptions, while boards demand profitable growth and reliable service. To meet both expectations, executives must focus on a short list of Key Performance Indicators (KPIs) that directly connect daily operations to earnings, cash flow, and risk management. This article explores how you can treat supply chain KPIs as a strategic driver of value creation, rather than just a reporting requirement.

What this article covers

1. How to choose supply chain KPIs that connect to earnings, cash, and risk
2. A simple development path for management and clear definitions
3. The three KPI groups and why they matter
4. Planning metrics to align demand and supply (forecast accuracy, plan stability, Sales and Operations Planning)
5. Service and cost metrics that protect revenue and free cash (On-Time In-Full, perfect order, cash-to-cash, cost-to-serve)

What to measure and why

Accenture's research shows that companies with advanced, next-generation supply chain capabilities are 23% more profitable than their peers. However, McKinsey's analysis highlights how disruptions can quickly eliminate those gains.

From metrics to outcomes

Executives want progress they can see in profit and loss statements and on the balance sheet. The right supply chain KPIs make that connection clear. Each KPI should link directly to a specific business result: earnings, cash, or risk.

Planning KPIs reduce rush orders and missed sales, which protects profit margins. Service KPIs improve reliability and order quality, which protects revenue. Cost and flow KPIs free up cash and lower the cost to serve customers.

McKinsey's work on high performing operations teams shows that performance metrics are a marker of organizations that grow earnings faster. Their report "The CEO: architect of the new operations agenda" provides a concise summary. The value evidence is strong: Accenture's study cited above reports that companies with the most mature supply chains are significantly more profitable and deliver better returns. The path is clear: link every operational KPI to a financial or customer outcome, then manage it carefully.

KPI development path

Maturity increases as you move from activity metrics to process metrics, then to outcome metrics, and finally to value metrics with a clear connection to results. At the top sit cash-to-cash, cost-to-serve, and perfect order metrics. They express financial and customer value, not just activity levels.

You also need resilience metrics that reveal risk exposure and recovery ability. McKinsey Global Institute's analysis shows how disruptions can eliminate a significant share of annual earnings in some sectors. This supports using a scorecard that balances efficiency with risk management. McKinsey's guidance recommends expanding the view beyond cost, service, and quality to include resilience, agility, and sustainability.

Finally, add clear management structure: owners, meeting schedules, performance limits, and decision rights. This prevents metric confusion and keeps conversations focused on outcomes executives care about.

The three KPI families every executive should know

Planning KPIs

Planning KPIs align demand and supply, reduce crisis management, and stabilize profit margins. The key areas to focus on include forecast accuracy and bias, demand plan stability, and how well teams follow Sales and Operations Planning (S&OP) processes. In mature Integrated Business Planning (IBP) programs, McKinsey reports higher earnings before interest and taxes, higher service levels, and lower freight and capital costs. Better forecasts reduce rush orders, cut safety stock without hurting service, and free planners to work on problems that need attention. A PwC case study shows that improving forecast accuracy can reduce inventory and improve sales at the same time.

Service KPIs

Service KPIs protect revenue and customer trust. The most important metrics include On-Time In-Full or OTIF( orders delivered complete and on time), the perfect order index (measures orders with zero errors), and fill rate (percentage of customer demand met without backorders). According to PwC, industry champions achieve OTIF rates above 90%, while average performers lag behind. This highlights the importance of aligning definitions with customers and tracking root causes for failures to close the performance gap.

Cost and efficiency KPIs

Cost and efficiency KPIs free up cash and reduce waste. The most valuable metrics to track include cash-to-cash cycles, inventory turns, and flow metrics such as cycle time (how long a process takes from start to finish) and first pass yield (the percentage of work done correctly without rework). Research shared by the Institute for Supply Management (ISM) shows companies hold enormous excess working capital, including excess inventory. The key is balancing efficiency with resilience. McKinsey Global Institute's (MGI) work shows how disruption risk can damage profits. This reminds us to measure flexibility and backup system health alongside cost reduction.

KPI families: summary table

Planning KPIs that align supply and demand

Forecast accuracy and bias

Companies need to decide how to measure forecast error by product and sales channel. Consider using Mean Absolute Percentage Error (MAPE) or a weighted method when revenue mix varies significantly. It's also important to track bias to avoid consistently over or under forecasting.

The benefits are substantial. In mature Integrated Business Planning (IBP) programs, McKinsey reports higher earnings before interest and taxes, better service levels, and lower costs. These improvements come from fewer rush orders and better resource allocation. A PwC case study shows that improving forecast accuracy can cut inventory by double digits and create savings while improving product availability. Document the target, the error calculation, and the review schedule on one page so teams can align quickly.

Demand plan stability and responsiveness

A stable plan reduces crisis management. The key metrics include plan changes per cycle, problem counts, and rush order rates. Mature IBP programs reduce missed sales and penalties because teams align earlier on what will ship and when. McKinsey analysis connects better planning to fewer surprises and lower logistics costs. However, responsiveness still matters.

Leading companies use scenario planning and analytics to test options faster. Accenture's study highlights that top performers use AI more broadly in their operations. Companies should measure both plan stability and decision lead time so continuous improvement efforts have clear targets.

Sales and Operations Planning execution and scenario quality

Sales and Operations Planning (S&OP) only works when teams follow through consistently. Important metrics include following the meeting schedule, decision cycle time, and plan versus actual performance at both product family and supply chain network levels (such as plants, warehouses, and distribution centres across regions). It's crucial to connect the executive S&OP presentation to financial results so decisions impact profit margins and cash flow, not just sales volume.

Companies should also evaluate scenario quality by checking that options are complete, comparable, and ready for decision-making. Including decision authority on the first page of the presentation helps transform S&OP from a monthly review into a business management tool.

Service excellence metrics that protect revenue and trust

On-Time In-Full (OTIF)

OTIF measures the percentage of customer orders delivered completely and on time, showing how reliably a company meets its delivery promises. Companies should start with a clear definition and align it with customers to avoid disagreements later. It's important to specify the time window for "on time" deliveries and the unit of measurement for "in full" quantities. Tracking root causes helps teams solve underlying problems rather than just addressing symptoms. Strong service performance delivers real value.

Perfect order

Perfect order tracks the percentage of orders delivered without any errors, covering timeliness, completeness, condition, and documentation. Perfect order captures the complete customer experience by combining multiple factors: on time delivery, complete quantities, damage-free condition, and correct documentation. Publishing clear calculation methods and applying them consistently across all divisions and regions ensures reliable comparisons.

Fill rate

Fill rate measures how well customer demand is met immediately from available stock, indicating inventory effectiveness. Fill rate remains valuable for measuring inventory effectiveness, but it can hide quality problems when used alone. Companies should use fill rate alongside other service metrics to get a complete picture of performance. Like other metrics, fill rate calculations should be standardized across all divisions and regions for meaningful comparisons.

Service metrics summary

Customer satisfaction and Net Promoter Score

Customer Satisfaction (CSAT) and Net Promoter Score (NPS) serve as early warning indicators for revenue performance. According to Bain's NPS research, NPS explains a large portion of the differences in organic growth between competitors, and improvements in NPS connect directly to measurable revenue increases. Companies should connect their On-Time In-Full (OTIF) and perfect order improvements to customer loyalty metrics. It's important to track CSAT and NPS at the appropriate organizational level and follow up when customers raise concerns. Creating a one-page dashboard that shows OTIF and perfect order trends alongside NPS helps leaders understand the cause-and-effect relationship between operational performance and customer loyalty.

Lean and cost KPIs for profitable, resilient operations

Lean KPIs focus on eliminating waste and improving process flow, while cost KPIs track financial efficiency and resource use. Together, they show how well a company converts resources into value while staying flexible enough to handle disruptions.

Inventory turns and cash-to-cash
Inventory turns and cash-to-cash cycles directly impact company cash flow and liquidity. Companies should define their cash-to-cash calculation clearly:

Cash-to-cash = DIO + DSO − DPO

Where:

• Days of Inventory Outstanding measures how long it takes to sell inventory.
• Days of Sales Outstanding tracks how long it takes to collect payment from customers and
• Days of Payables Outstanding shows how long the company takes to pay suppliers

It's helpful to report the specific factors that influence each component and assign clear ownership for managing each factor.

The opportunity for improvement is significant. The Institute for Supply Management's (ISM) summary of Hackett's 2022 working capital study highlights nearly two trillion dollars of excess working capital across large companies, with hundreds of billions tied up in excess inventory alone. Companies can treat this as an opportunity to fund improvements through better cash management. Connecting planning quality and service stability to faster inventory turns helps teams understand how the entire system works together.

Cost-to-serve and landed cost

Standard unit costs hide wide variation by product, sales channel, and customer type. Cost-to-serve analysis reveals the real economics behind split shipments, premium transportation, and small orders. Companies can use this information to identify profit leaks, improve service policies, and make better pricing and contract decisions. The key is showing how these actions will impact earnings. The same approach applies to landed cost in complex supply chain networks. Including cost-to-serve on the executive dashboard ensures the business invests in the right customer promises.

Process efficiency

Cycle time (total time to complete a process), first pass yield (percentage done right the first time), and touch time (the portion of cycle time when work is actively being done, excluding waiting or delays) track flow in the most important value streams. These metrics help remove waste and lower the cost to serve customers. However, companies need to maintain balance. McKinsey Global Institute research shows how focusing only on efficiency without considering resilience can increase vulnerability to disruptions that damage earnings. Companies should add resilience metrics such as alternate source coverage (percentage of materials with backup suppliers), capacity buffer health (readiness of extra production or storage capacity), and recovery time (how quickly operations can return to normal after a disruption). This approach allows efficiency improvements to reduce costs while keeping the network flexible enough to protect service and profit margins during disruptions.

Supply chain optimization: strategic next steps

A focused set of supply chain KPIs connects daily execution to profit, cash flow, and customer trust. Planning metrics help stabilize profit margins by reducing surprises and missed sales opportunities. Service metrics protect revenue by minimizing the defects that customers experience, while cost and flow metrics free up cash for growth investments. Companies should also include resilience measures to balance efficiency improvements with risk management. Success requires clean metric definitions, regular review schedules, and clear decision-making authority to drive meaningful action.

Key takeaways from this article:

A focused set of supply chain KPIs helps link daily execution to profit, cash flow, and customer trust.

• Planning KPIs – Audit and document forecast accuracy, bias, and S&OP execution on one page per metric. Standardize definitions across regions to reduce rush orders and missed sales.
• Service KPIs – Align OTIF and perfect order definitions with customers, track root causes, and publish a dashboard that includes customer loyalty metrics like NPS.
• Cost & Efficiency KPIs – Monitor cash-to-cash cycles and inventory turns to free up working capital, while adding resilience metrics like buffer health and alternate source coverage.