Proactive Data Envelopment Analysis: Effective Production and Capacity Expansion under Stochastic Environment

Lee, C-Y. and A.L. Johnson, 2014. “Proactive Data Envelopment Analysis: Effective Production and Capacity Expansion in Stochastic Environments” European Journal of Operational Research 232(1): 537-548.

33 Pages Posted: 13 Nov 2012 Last revised: 23 Feb 2018

See all articles by Chia-Yen Lee

Chia-Yen Lee

National Cheng Kung University

Andrew L Johnson

Texas A&M University

Date Written: November 12, 2012

Abstract

Demand fluctuations that cause variations in output levels will affect a firm’s technical inefficiency. This paper proposes a short-run capacity planning method termed proactive DEA, which quantifies the effectiveness of a firm’s production system under demand uncertainty. Using a novel stochastic programming DEA (SPDEA) approach, we improve upon short-run capacity expansion models by accounting for the decreasing marginal benefit of inputs and estimating the expected value of effectiveness, given demand. An empirical study of Japanese convenience stores is discussed to demonstrate the proposed model. The results show that the proposed method provides actionable advice regarding the level of variable inputs in uncertain demand environments.

Keywords: data envelopment analysis, stochastic programming, short-run capacity expansion, marginal product, demand uncertainty

JEL Classification: D24, O47, D51

Suggested Citation

Lee, Chia-Yen and Johnson, Andrew L, Proactive Data Envelopment Analysis: Effective Production and Capacity Expansion under Stochastic Environment (November 12, 2012). Lee, C-Y. and A.L. Johnson, 2014. “Proactive Data Envelopment Analysis: Effective Production and Capacity Expansion in Stochastic Environments” European Journal of Operational Research 232(1): 537-548.. Available at SSRN: https://ssrn.com/abstract=2174769 or http://dx.doi.org/10.2139/ssrn.2174769

Chia-Yen Lee (Contact Author)

National Cheng Kung University ( email )

No.1, University Road
Tainan
Taiwan

Andrew L Johnson

Texas A&M University ( email )

4033 Emerging Technologies Building
College Station, Texas 77843-3131
College Station, TX 77843-4353
United States

HOME PAGE: http://www.andyjohnson.guru

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