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

Chia-Yen Lee () and Andrew Johnson

Annals of Operations Research, 2015, vol. 235, issue 1, 453-486

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

Keywords: Data envelopment analysis; Effectiveness measure; Sales effect; Effective production; Strategic position (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10479-015-1932-3

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