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

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