Data Envelopment Analysis for monitoring customer-supplier relationships

Abstract

Government regulators interested in monitoring performance and building good regulator-regulated agency relationships may be interested in this private sector example. With the advent of Just-In-Time (JIT) manufacturing philosophy and deregulation of some industries, private business is choosing what may be defined as a self-imposed monopsonistic environment by choosing to work with as few as one supplier. This environment has left managers with the task of building mutually satisfying long-term relationships. In many instances, as the number of suppliers decreases, the customer and supplier operations and profitability become interdependent. Continuous monitoring and feedback of tangible and intangible factors affecting satisfaction is necessary to sustain the relationship. This paper illustrates how Data Envelopment Analysis (DEA) can be used to track the performance of a selected supplier. DEA modeling allows managers to consider not only financial and economic measures simultaneously, but also to incorporate quantitative measures of satisfaction.