Application of centralised DEA in an automobile parts retail network in Taiwan

Abstract

PurposeThe purpose of this study is to address three managerial issues in a retail network under a centralised regime, including resource allocation, expansion and downsizing. In particular, this study investigates how to optimise resource allocation across retailers and how to decide the optimal size of a retail network for an empirical case, where 27 retailers belong to an automobile parts supplier in Taiwan.Design/methodology/approachThe centralised data envelopment analysis (DEA) approach is used to optimise resource allocation among retailers and to seek the possibility of either an expansion and/or downsizing for a retail network.FindingsThe case company knows the best way to (re)allocate its available resources and (re)arrange the outcome goals for its own retailers. The 27 retailers are assigned specific targets for input and output adjustments to become Pareto or technically efficient units. Besides, an experiment is designed to measure how changing the number of retailers affects the group efficiency of the retail network. To keep the current aggregated output level of the retail network, the centralised supplier needs at least 24 retailers. However, the retail network with 37 retailers can achieve maximal group efficiency.Originality/valueCentralised resource allocation is an inherent feature of most supplier-retailer relationships, where the supplier is usually a central planner with the power to allocate available resources among its own retailers. To the best of our knowledge, this is the first study to assess retail performance under a centralised regime.

Centralized resource allocation and target setting of a two‐stage production process using data envelopment analysis

“…The second is optimizing the total revenue and cost functions to reach the best performance of the system. Yang (2020) jointly applied Lozano and Villa's (2004) and Mar‐Molinero et al.’s (2014) models to address three managerial issues in an automobile parts retail network under a centralized regime, including the resource allocation, expansion, and downsizing. However, the aforementioned decentralized and centralized DEA studies for the issue of resource allocation and target setting only consider the production process of the DMUs as a single‐stage structure, namely, a black box.…”

“…Centralized resource allocation and target setting (CRATS) refers to a process in which top management has the power and responsibility to allocate the limited input resources and to arrange the expected output targets among its own operating units. CRATS exists in a situation where all of the operating units belong to the same business organization, which attempts to minimize the total input consumption and simultaneously maximize the total output production of its own operating units from a centralized viewpoint, such as bank branches, hospitals, dealers, police stations, retailers, secondary schools, and university departments (see Lozano and Villa, 2004; Fang, 2013; Yang, 2016; Ang et al., 2020; Yang, 2020). Determining an optimal CRATS plan can help a central manager optimally allocate the input resources and set the output targets among its own operating units for the purpose of maximizing the benefit of the entire organization.…”

“…To improve the performance of inefficient DMUs, the DEA methodology can indicate to what extent the inputs should be reduced and/or the outputs should be increased. Therefore, the DEA‐based models have been widely used by both practitioners and scholars so as to investigate how to better allocate the input resources and set output targets among the DMUs (Li et al., 2017; Ang et al., 2020; Yang, 2020). It is worthy of note that the common DEA models, including the so‐called CCR (Charnes‐Cooper‐Rhodes) model (Charnes et al., 1978), BCC (Banker‐Charnes‐Cooper) model (Banker et al., 1984), and SBM (slacks‐based measure) model (Tone, 2001), assume that each DMU is a decentralized autonomous organization.…”

“…This case is used to demonstrate how a central supplier can optimally allocate the input resources and set the outcome goals among its own retailers by using the proposed centralized two-stage network DEA model. In practice, a retail network is often under the control of a central supplier, which has the power and responsibility to (re)allocate available resources and to (re)arrange the expected outcome goals among its own retailers from a centralized viewpoint (Yang, 2020). Let us take a closer examination of the retailers.…”

The operational performance of fashion companies in the context of the coronavirus pandemic: static and dynamic analyses

“…Ho and Huang (2020) investigated the interdependencies of intangible marketing capabilities and operations on US hospital performance. Yang (2020) addressed three managerial issues in an automobile parts retail network: resource allocation, expansion and downsizing. These studies analyzed company performance from a static perspective.…”