8. Inventory Performance Measurement

Considering the central nature of inventory as an indication of the effectiveness of supply chain operations and decisions, inventory measurement and performance assessment are paramount. For example, Gartner annually publishes a Top 25 Supply Chain1 ranking that highlights the firms that are innovators and leaders in terms of their supply chain processes and strategies.2 Roughly 40 percent of Gartner’s ranking logic is associated directly with inventory. One of the key performance indicators (KPIs) it uses is Return on Assets (ROA), which is considered a robust measure of a firm’s overall operational efficiency and calculated as

ROA = Net Income/Total Assets

Because inventory is an asset, a firm’s inventory ...

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