Evaluating the Relative Efficiency of Quality Cost Management: Using Data Envelopment Analysis

Evaluating the Relative Efficiency of Quality Cost Management:

Using Data Envelopment Analysis

Haiying Liu

Shandong University of Technology

Shandong Province, P. R. China

Zafar U. Khan, Ph.D.

Eastern Michigan University

Corresponding Author:

Zafar U. Khan, Ph.D.

Professor

College of Business

Eastern Michigan University

Ypsilanti, MI 48197

(734) 487-1261

(734) 487 7099 Fax

Zafar.Khan@Emich.edu

Evaluating the Relative Efficiency of Quality Cost Management:

Using Data Envelopment Analysis

Abstract

While quality has been important since ancient times, it has become a lot more important in today's competitive environment. Many companies realizing the strategic importance of quality have implemented total quality management programs and some have even implemented cost of quality systems. A problem is how to assess overall performance and relative efficiency of the different decision-making units (DMUs) given the many and diverse performance measures used in practice. Particularly because there is no obvious optimal weighting scheme that can be used for all DMUs.

This paper illustrates the use of data envelopment analysis (DEA) for evaluating the relative efficiency of the quality programs implemented by the many DMUs. Besides rating the DMUs as either efficient or inefficient DEA provides insight into the use and relationship of the various inputs and outputs. Thus allowing each DMU to improve its performance and also learn from other DMUs. DEA is a robust technique that measures overall efficiency using multiple measures of inputs and outputs, including non-parametric and has been widely used since 1978 in many diverse environments.

Evaluating the Relative Efficiency of Quality Cost Management:

Using Data Envelopment Analysis

Introduction

Quality has been an important factor in the production of goods and services from ancient times (Fink, 2000). However, to be...