Teaching Data Envelopment Analysis using Applichem---New Perspective on a Popular Operations Case

Abstract

This paper reports an innovative use of a popular operations management case to illustrate the usefulness and application of a powerful analysis technique called Data Envelopment Analysis DEA. DEA is often the only available tool that enables managers to evaluate the relative efficiencies of various business units in the presence of multiple performance measures. Applichem is a case study about a multinational chemical company, with six manufacturing plants located all over the world. The manufacturing plants' efficiencies are highly varied and in the presence of excessive capacity, management is having a difficult time determining which plants must be shut down. This case is often studied from an optimization perspective, with the objective of matching customer demands with plant capacities at the lowest possible cost. The case involves multiple measures of performance e.g. labor cost, material cost, etc., which makes it ideal for introducing and demonstrating DEA from a practical perspective. This paper details how such an analysis can be presented in a business classroom.