Assessing cost efficiency of pharmacy retail stores and identification of efficiency drivers

Smriti Pande and G.N. Patel

International Journal of Business Performance Management, 2013, vol. 14, issue 4, 368-385

Abstract: This paper examines all 46 pharmacy retail stores of an organisation located in National Capital Region (NCR), India, to determine their relative cost efficiency using data envelopment analysis (DEA) models and identify the drivers of cost efficiency using Tobit regression model. Allocative model of DEA technique is applied to identify different types of inefficiency that may exist within the stores. The analysis highlights the need of huge reductions either in per unit cost or number of inputs and also demands for reallocation of the resources. Most of the stores possess inefficient cost-based structures. Footfalls, salary and operating expenses are identified as cost efficiency drivers. The results derived cannot be generalised for the whole sector, because only a player of a huge sector is under examination. The study draws important implications for the managers of the organisation, as managing cost is the most imperative task for improving the overall performance of any business.

Keywords: pharmacies; retailing; pharmacy retail stores; DEA; data envelopment analysis; constant returns to scale; CRS; variable returns to scale; VRS; technical efficiency; cost efficiency; allocative efficiency; Tobit regression modelling; efficiency drivers; performance; India; resource allocation; footfall; salaries; operating expenses. (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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