This study aims to explore the role of innovation in improving Supply Chain Performance (SCPe) through the effective application of Supply Chain Practices (SCPs) in Small and Medium Enterprises (SMEs). The main problem SMEs face is the limited resources and knowledge to manage complex supply chains, which often hinders their ability to innovate and compete. Previous approaches in this study have generally focused on technology adoption and collaboration between stakeholders as a means to improve Supply Chain Performance, but often do not take into account the specific context of SMEs that have limitations in terms of resources and innovation capacity. This study is designed by using causal relationships between variables and a reflectively configured structural equation model to test the hypothesis formulated. The research data was processed using SEM-PLS analysis tools from 342 SMEs in various industrial sectors in the special region of Yogyakarta. The results of this study are able to answer questions about the influence of SCP dimensions, namely Knowledge Management Capability (KMC), Strategic Supplier Partnership (SSP), and Customer Relationship (CR), on Supply Chain Performance (KSC) and Supply Chain Innovation. This study is also able to prove the mediating role of Supply Chain Innovation in the relationship between Supply Chain Practice and Supply Chain Performance. Thus, this research not only contributes to the literature related to supply chain management in SMEs but also paves the way for the application of a broader cross-disciplinary approach in addressing innovation challenges in other sectors.