A caveat on the measurement of productive efficiency

Article Abstract:

The correspondence between used performance measures and enterprise objectives, such as profit maximization and cost minimization, is fundamental for manufacturing companies. This paper identifies, and critically examines, a minimal set of relevant properties that a productivity index needs to satisfy to rightly assess performance development of a decision-making unit. Commonly applied and suggested productivity measurement techniques, such as partial efficiencies, total factor productivity (TFP), index number approaches, integrated partial efficiencies and operational competitiveness ratings, are analyzed in order to assess the alignment with superior objectives. There is a considerable spread in the results of this class of models and the interpretation may prove difficult or misleading. As these apparently less complicated productivity measures increasingly are employed as a component in evaluation of manufacturing efficiency, the question is of high managerial relevance. In particular, the paper points out inconsistencies with properties related to commensurability, monotonicity, and implications of maximizing behavior. Based on this viewpoint, issues such as the consistency with profit maximization will be shown extra interest. The paper also provides a critique of previous work in non-parametric efficiency analysis where properties have been postulated or based on other arguments. The findings suggest that there is no globally superior measurement technique to be found in this class and that care should be taken when evaluating managerial performance not to penalize rational behavior. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Productivity analysis; Performance evaluation; Total factor productivity; Index number

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The use of parametric and non-parametric frontier methods to measure the productive efficiency in the industrial sector: A comparative study

Article Abstract:

Parametric frontier models and non-parametric methods have monopolised the recent literature on productive efficiency measurement. Empirical applications have usually dealt with either one or the other group of techniques. This paper applies a range of both types of approaches to an industrial organisation setup. The joint use can improve the accuracy of both, although some methodological difficulties can arise. The robustness of different methods in ranking productive units allows us to make a comparative analysis of them. Empirical results concern productive and market demand structure, returns-to-scale, and productive inefficiency sources. The techniques are illustrated using data from the US electric power industry. Keywords: Productive efficiency; Parametric frontiers; DEA; Industrial sector

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A multicriteria framework for inventory control

Article Abstract:

Consistent and maximum inventory control is dependent on proper decision making for batch size and security stock requirements. The multicriteria decision making (MCDM) analysis tool has been considered an effective instrument for managing inventory control problems. The MCDM model allows the development of a flexible and interactive solution that is not hindered by decision and market assumptions.

Multiple criteria decision making, Models, Inventory control, Decision support systems

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