Performance Measurement of Distribution Centre Combining Data Envelopment Analysis and Analytic Hierarchy Process

Abstract: Performance measurement has received significant interest during the present industrial scenario. Researchers are emphasizing the development of newer exotic cutting edge tools and more effective methods that can be applied to solve organisational problems. Data Envelopment Analysis (DEA) model measure the efficiencies of a set of homogenous systems or decision making units (DMUs) by incorporating multiple input and output factors, can be applied for the purpose. Performances of all the DMUs, Distribution centres (DCs) as envisaged in this paper are evaluated by calculating efficiencies. DEA being a nonparametric technique, the output generated by DEA should be viewed with caution and should be used only after conducting appropriate sensitivity analysis. Analytic Hierarchy Process (AHP) which is a powerful and flexible decision making tool for complex, multicriteria problems overcomes the deficiencies of DEA. In the next step again performances of all the DCs are evaluated using the AHP. On the other hand DEA guides the non performing DCs about the level of improvement required for any given criteria to meet the performance level of performing DCs. Where, AHP has virtually no contribution to sort out the said problem. Hence in the third step a hybrid methodology has been proposed combining performance suggested by both DEA and AHP, to develop an overall performance measure and to derive the benefit of both the models. Sensitivity analysis has also been reported for making an eclectic decision.