Nonradial plant capacity concepts: proposals and attainability

Abstract

This contribution observes that plant capacity notions based on traditional radial efficiency measures may leave substantial amounts of slacks or unmeasured inefficiency. These unmeasured inefficiencies can result in inaccurate assessments of production capabilities, potentially leading to suboptimal operational and strategic decisions. To remedy this problem, we define new nonradial output-oriented and input-oriented plant capacity concepts based on nonradial Färe-Lovell efficiency measures. By leveraging nonradial measures, our approach captures multidimensional inefficiencies, providing a more nuanced and accurate evaluation of production performance across various input and output dimensions. Furthermore, we also explore how the introduction of nonradial attainability levels can render the attainable output-oriented plant capacity concept more flexible. This flexibility allows for the incorporation of realistic operational constraints, ensuring that capacity assessments are both practical and adaptable to diverse production environments. An empirical illustration on a secondary data set illustrates the pertinent differences between radial and nonradial plant capacity notions. Our empirical analysis demonstrates that nonradial measures offer a more detailed understanding of capacity utilization. In particular, it shows that nonradial plant capacity concepts are especially important on a nonconvex technology.