Reliant Logistics Institute


Supply chain efficiency measurement


Supply chains are complex systems composed of many interrelated and conditioned processes. Supply chains and similarly complex systems and processes are viewed as “black boxes” for a long time. Their structure and operating are not considered properly. For a successful efficiency evaluation of supply chains, it is necessary to measure the performances of all participants in the chain, including suppliers, manufacturers, traders and end-users. The efficiency of independent participants in the supply chain is measured using the DEA method. However, the number of papers that analyze the efficiency of supply chains is very small. Measuring the efficiency of supply chains has been recognized as a problem of measuring the efficiency of multi-stage processes. The DEA models are categorized into four categories: standard DEA approach; efficiency decomposition approach; network DEA approach; game-theoretic approach. The Supply chain member uses its own strategy for achieving efficiency. Sometimes, due to possible conflicts be-tween supply chain members, one member’s inefficiency may be caused by another’s efficient operations. The supplier can increase the price of raw materials to enhance its revenue and to achieve an efficient performance. This increased revenue means increased cost to the manufacturer. The manufacturer may become inefficient if it does not adjust its current operating policy. Measuring supply chain performance becomes a difficult and challenging task because of the need to deal with the multiple performance measures related to the supply chain members and the need to integrate and coordinate the performance of those members. Two hurdles are present in measuring the performance of supply chains. One is the existence of multiple measures that characterize the performance of each member in a supply chain. There may be the existence of conflicts between supply chain members with respect to specific measures. The problem of input and output classification creates a problem in supply chain efficiency measuring. Some measures linked to related supply chain members cannot be simply classified as “outputs” or “inputs” of the supply chain. For example, the supplier’s revenue is not only an output of the supplier (the supplier wishes to maximize it) but also an input to the manufacturer (the manufacturer wishes to minimize it). Simply minimizing the total supply chain cost or maximizing the total supply chain revenue (profit) does not model and solve the conflicts. Therefore, the meaning of supply chain efficiency needs to be carefully defined and studied. The models must measure the efficiency of a supply chain as well as supply chain members. The DEA approach uses two separate DEA runs for two supply chain members and calculates independent efficiency for each member and does not treat common measure in a coordinated manner.


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