Measuring the performance of industrial processes with data envelopment analysis

Abstract

Conventional Data Envelopment Analysis (DEA) treats the production system as a black box in measuring efficiency, in that only the inputs supplied to and the outputs produced are considered. By taking the operations of the component processes of the system into account, several network DEA models have been developed. Of these, the Slacks-Based Measure (SBM) approach has attracted much attention for its ability to provide suitable efficiency measures, especially for weakly efficient production units. This paper proposes a general SBM model for network systems, and is able to decompose the system efficiency into a weighted average of the process efficiencies. This relationship holds for all types of network structure. An example of utility companies shows that the network model has stronger discriminating power than the conventional
black-box model, and the system efficiency is indeed a weighted average of the process efficiencies. The decomposition of the system efficiency helps identify key factors to improve the performance of a production unit.