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Effective production: measuring of the sales effect using data envelopment analysis

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  • Chia-Yen Lee

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  • Andrew Johnson

    ()

Abstract

Sales fluctuations lead to variations in the output levels affecting technical efficiency measures of operations when units sold are used at an output measure. The present study uses the concept of “effective production” and “effectiveness” to account for the effect of sales on operational performance measurements in a production system. The effectiveness measure complements the efficiency measure which does not account for the sales effect. The Malmquist productivity index is used to measure the sales effects characterized as the difference between the production function associated with efficiency and the sales-truncated production function associated with effectiveness. The proposed profit effectiveness is distinct from profit efficiency in that it accounts for sales. An empirical study of US airlines demonstrates the proposed method which describes the strategic position of a firm and a productivity-change analysis. These results demonstrate the concept of effectiveness and quantifies the effect of using sales as output. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Chia-Yen Lee & Andrew Johnson, 2015. "Effective production: measuring of the sales effect using data envelopment analysis," Annals of Operations Research, Springer, vol. 235(1), pages 453-486, December.
  • Handle: RePEc:spr:annopr:v:235:y:2015:i:1:p:453-486:10.1007/s10479-015-1932-3
    DOI: 10.1007/s10479-015-1932-3
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    References listed on IDEAS

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    1. Lee, Chia-Yen & Johnson, Andrew L., 2012. "Two-dimensional efficiency decomposition to measure the demand effect in productivity analysis," European Journal of Operational Research, Elsevier, vol. 216(3), pages 584-593.
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    Citations

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    Cited by:

    1. Ke Wang & Chia-Yen Lee & Jieming Zhang & Yi-Ming Wei, 2018. "Operational performance management of the power industry: a distinguishing analysis between effectiveness and efficiency," Annals of Operations Research, Springer, vol. 268(1), pages 513-537, September.
    2. Ke Wang & Jieming Zhang & Yi-Ming Wei, 2017. "Operational and environmental performance in China¡¯s thermal power industry: Taking an effectiveness measure as complement to an efficiency measure," CEEP-BIT Working Papers 100, Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology.
    3. repec:eee:transa:v:106:y:2017:i:c:p:197-214 is not listed on IDEAS

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