Two-stage data envelopment analysis technique for evaluating internal supply chain efficiency

Abstract

A two-stage data envelopment analysis (DEA) which uses mathematical linear programming techniques is
applied to evaluate the efficiency of a system composed of two relational sub-processes, by which the outputs
from the first sub-process (as the intermediate outputs of the system) are the inputs for the second sub-process.
The relative efficiencies of the system and its sub-processes can be measured by applying the two-stage DEA.
According to the literature review on the supply chain management, this technique can be used as a tool for
evaluating the efficiency of the supply chain composed of two relational sub-processes. The technique can help to determine the inefficient sub-processes. Once the inefficient sub-process was improved its efficiency, it would
result in better aggregate efficiency of the supply chain. This paper aims to present a procedure for evaluating
the efficiency of the supply chain by using the two-stage DEA, under the assumption of constant returns to scale,
with an example of internal supply chain efficiency measurement of insurance companies by applying the
two-stage DEA for illustration. Moreover, in this paper the authors also present some observations on the
application of this technique.