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4th International Conference on Operational Research (InteriOR) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 300 (2018) 012008 doi:10.1088/1757-899X/300/1/012008
1234567890‘’“”

Data Envelopment Analysis (DEA) Model in

Operation Management
Meilisa Malik1, Syahril Efendi2 , Muhammad Zarlis3
Department of Mathematics, Universitas Sumatera Utara, Medan, Indonesia
E-mail: 1 [email protected], 2 [email protected], 3 [email protected]

Abstract. Quality management is an effective system in operation management to develops,

maintains, and improves quality from groups of companies that allow marketing, production,
and service at the most economycal level as well as ensuring customer satisfication. Many
companies are practicing quality management to improve their bussiness performance. One of
performance measurement is through measurement of efficiency. One of the tools can be used
to assess efficiency of companies performance is Data Envelopment Analysis (DEA). The aim
of this paper is using Data Envelopment Analysis (DEA) model to assess efficiency of quality
management. In this paper will be explained CCR, BCC, and SBM models to assess efficiency
of quality management.
Keywords : Data Envelopment Analysis, Quality Management, performance measurement

1. Introduction
Operation management is a management system maximally of production factors in
transformation process to be various products and services. Operation managemet is an effort
to convert inputs into outputs by using physical resources so give benefits customers to meet
effectiveness, the aim, compatibility and efficiency of companies [11].
The aim of operation management is to producing products or services with right quality
and quantity at the time and right production cost so can be result maximum profit. Quality
control is one of the important factors in operation management. Quality control is the way
that used to improve and result level of products and services quality which are desired. This
is systematic control from many factors that influence products or services quality.
Various the quality measurement incluce performance, features, reliability, durability,
commitment to due date, etc. Now, customers demand products and services with greater
durability and reability at the most economical price. this forces manufacturer to follow
procedure of right quality start from design until delivery and installation of product. So,
the aim of competitive industries are producing products or services at the economical price and
can used customers satisfication. This can be achieved through total quality management [11].
Total quality management is effective system in operation management to develops,
maintains, and improves quality of groups in company so allows marketing, production, and
services at the most economical level and ensure customers satisfication. Many companies
that practicing quality management to improve bussiness performance and still competitive
in industries.
Uyar [14] show that financial and nonfinancial measures must be used in a balanced way to
evaluate quality performance of companies. Therefore need a the tool can be used to asses

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4th International Conference on Operational Research (InteriOR) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 300 (2018) 012008 doi:10.1088/1757-899X/300/1/012008
1234567890‘’“”

quality performance of companies based on financial and nonfinancial measurements. One

of the companies perfoemance measurement level is efficiency assessment. There are several
methods can be used to assess efficiency, such as : Stochastic Frontier Analysis (SFA) and Data
Envelopment Analysis (DEA)
SFA method were parametric approach that allow to give greater specification, especially in
the case of panel data. SFA can be used to statistical test and construction confidence intervals.
However, while a statistical stochastic approach allow result frontier for all data and this is not
consistent to tecnological development. Therefore, the choice between different approaches must
be based on trade-off concerning the purpose of the study, type of data, technology characteristics
[12].
DEA method were nonparametric approach to asses performance set of entities which are
called Decision Making Units (DMUs) that change inputs into outputs. Since DEA the first
time introduced until current formulation, the researchers various fields had admitted that DEA
method excellent and easy used to modeling operational process in assess performance. This had
been accompanied by other developments. The examples, Zhu [15] presented a spreedsheet DEA
model can be used to assess and became a benchmark of performance. Pournader [13] developed
DEA model to outsourcing performance quality assessment in services supply chain. Use of this
model in manufacturing requires a review to inputs, outputs, and intermediate products such
as production and purchase of facilities, market speed, security, etc.
DEA can be used to assess efficiency level with existence of several inputs and outputs entities.
Efficiency measurement quality performance of companies very needed to compare performance
of companies with their competitors, and developed their business based on performance
improvement plan. Therefore, this study is focused on capability Data Envelopment Analysis
to assess efficiency of quality management.

2. Measurement Efficiency of Quality

Critical Factors in total quality management that found in literature vary from several writer,
however there were common factors [5], such as :
• customer based approach
• management leadership and commitment
• quality planning
• management based on facts
• continious improvement
• Human resource management
• learning
• process management
• cooperation with suppliers
Performance measurement system, measuring inputs and outputs on operation include
explain good or bad operation by use that system. Performance measurement important for
all functional division in companies, especially operation management which directly impact
on bussiness in the process efficiency include purcase acquisition and raw material inventory.
Simple efficiency ratio [1], that is : Output
Input be measured on individual variable that is employee,
machine, and room.
Two important things in quality management were improvement process management and
production quality. Improvement reliability and conformity in production process can improve
internal process quality. Improvement of product quality can increase market share, higher
prices, and better reputation. Therefore both of these things can increase profit and operational

2
4th International Conference on Operational Research (InteriOR) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 300 (2018) 012008 doi:10.1088/1757-899X/300/1/012008
1234567890‘’“”

performance. Relationship between quality management and performance of companies, that

is: quality performance, financial performance, and operational performance.

3. Data Envelopment Analysis (DEA)

Data Envelopment Analysis (DEA) was introduced by Charnes, Cooper, dan Rhodes [2]. DEA
method was made as tool to evaluate performance an activity in entity units or organization.
DEA was nonparametric approach which is basically a technique linear programming. The
researchers on several fields quickly admitted that DEA was excellent methodology to modelling
operational process.
On DEA, Companies were called as Decission Making Units (DMUs). Term Decission Making
Units (DMUs) was introduced in the same way as entities, each of entities be evaluated as part of
group that utilize inputs to producing outputs. The result of evaluation made in score efficiency
about between 0 until 1 and represent degree of efficiency which is obtained from entities assessed.
Whit the score, DEA also identified source and number of not efficient DMUs on every input and
output. It also identified DMU (that placed on efficient frontier) that included actively in the
appearance of these results. Assessment entities were all efficient DMUs and hence can fuction
as benchmarking to effective improvement at future performance from DMUs be evaluated [4].
Some basic DEA models and expansion DEA models used in this paper that is: CCR model,
BCC model, and Slack-Based (SBM) model.

3.1. CCR Model

CCR DEA model was the first DEA model which was introduced by Charnes, Cooper dan
Rhodes (1978). Consider there are n DMUs, that are: DMU1 , DMU2 , DMU3 , . . . , DMUn . Each
DMUj , (j = 1, ..., n) use m inputs xij (i = 1, . . ., m) dan generates s outputs yrj (r = 1, . . ., s).
Let the input weights vi (i = 1, 2, . . ., m) and the output weight ur (r = 1, 2, . . ., s) as variables.
Let the DMUj to be evaluated on any trial be designated as DMUo (o = 1, 2, . . ., n). The
efficiency of each DMUo , eo , is thus found by solving the linear programming below, which is
known as multiplier form in DEA [10]:

eo = max ur yro (1)
r
 
s.t ur yro − vi xio ≤ 0
r i

vi xio − 1
i
ur , vi ≥ 0
The model is run n times in identifying the relative efficiency scores of all the DMUs. Each
DMU selects a set of input weights vi and output weights ur that maximize its efficiency score.
Generally, a DMU is efficient if it obtains the maximum score of 1, else a DMU is inefficient.
Model dikerjakan n kali untuk mengidentifikasi skor efisiensi relatif dari seluruh DMU. Setiap
DMU memilih sekumpulan bobot input vi dan bobot output ur yang memaksimumkan skor
efisiensinya. Secara umum DMU efisien jika memperoleh skor 1 jika tidak maka DMU tidak
efisien. CCR model is that it assumes constant return to scale (CRS), which may not be true
for some applications. To address this issue, researchers have implemented variable return to
scale (VRS) into the original DEA model.

3
4th International Conference on Operational Research (InteriOR) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 300 (2018) 012008 doi:10.1088/1757-899X/300/1/012008
1234567890‘’“”

3.2. BCC Model

DEA model that implemented Variable Return to Scale (VRS) was known as model BCC,
Banker, Charnes dan Cooper (1984). In BCC model, VRS is assumed and the efficient frontier
is formed by the convex hull of the existing DMUs. The envelopment form of BCC [10] is

minθo (2)

s.t λj xij − θo xio ≤ 0
j

λj yrj − yro ≥ 0
j

λj = 1
j

λj ≥ 0

Note that BCC differs from CCR in that it has the additional convexity constraint, j λj = 1
A DMU is BCC efficient if it has an optimal solution of θ = 1 λ = 1, and λ = 0.

3.3. Slack Based Model (SBM)

A variation model was proposed by name slack based model (SBM) that representing
mesurement efficiency [10]:
1 − 
1− m i si /xio
minρ =  + (3)
1 + 1s r sr /yro

s.t λj xij − xio + s−
i =0
j

λiyrj − yio − s+
r =0
i

λj = 1
j

λj , s− +
i , sr ≥ 0

which s− + − +
i and sr are slacks, si is input excesses dan sr is output shortfalls. The optimum
solution of SBM is 1, which can only be achieved when all the slacks equal to zero. This is
consistent with CCR and BCC models.

4. Efficiency of Quality Management Using Data Envelopment Analysis (DEA)

Model
Performance measurement in this paper include measuring quality, operational and financial.
Then divided into specific variables like the following table:
In this study given an illustration example about quality management, data is taken from
research had developed earlier by Kuah, Wong, and Behrouzi [9]. Ilustration problem consist of
10 small companies as DMUs with 2 inputs and 4 outputs. The inputs and outputs data:
inputs:
• Quality costs (x1 );
• Employees involved in quality(x2).

4
4th International Conference on Operational Research (InteriOR) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 300 (2018) 012008 doi:10.1088/1757-899X/300/1/012008
1234567890‘’“”

Table 1. Performance Measures dan output variables

Performance Measures output variables
Quality Performance Measures Quality products (%)
Customer satisfaction rate (%)
Operational Performance Measures On-time delivery rate (%)
Financial Performance Measures Revenue (million USD)

Output:
• Quality products (y1 );
• Customer satisfaction rate (y2 );
• On-time delivery rate (y3 );
• Revenue (y4 ).
Table 2 show inputs and outputs data from 10 DMUs. These data should be transformed into
CCR, BCC, and SBM models, then determined which companies are already efficient. Linear
Programming models are run by software LINDO.

Table 2. Data for illustration example

DMU X1 X2 Y1 Y2 Y3 Y4
1 18 39 98 92 91 17
2 27 40 92 93 98 22
3 30 50 95 92 81 33
4 19 44 93 92 82 40
5 31 35 95 96 97 37
6 17 33 93 92 95 31
7 23 47 91 93 81 32
8 30 46 90 94 92 29
9 17 38 95 99 96 16
10 22 42 96 96 84 14

5. Conclusion
One of methods can be used to solve efficiency in operation management by Data Envelopment
Analysis (DEA). By focusing on measure quality performance, operational performance, and
financial performance can be evaluated what extent system of quality management can be re-
paired to development bussiness performance of companies and still competitive in industries.
This paper extends the allocation resources of literature about application DEA in a reciprocal
context between efficiency and effectiveness in quality management of companies. From com-
parison result on illustration example were done by DEA CCR, BCC, and SBM obtained the
same result to DMU 4, 6, and 9. Whereas for other DMUs there were difference of results so
the next research should be done improvement or review of data inputs to produce appropriate
outputs, so that DMUs were efficient.

5
4th International Conference on Operational Research (InteriOR) IOP Publishing
IOP Conf. Series: Materials Science and Engineering 300 (2018) 012008 doi:10.1088/1757-899X/300/1/012008
1234567890‘’“”

Table 3. Efficiency of 10 DMU

DMU θCCR∗ ∗
θBCC ρ∗SBM
1 0.98 1 1
2 0.85 1 1
3 0.68 1 1
4 1 1 1
5 1 0.94 0.76
6 1 1 1
7 0.75 1 1
8 0.73 1 1
9 1 1 1
10 0.82 1 1

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