Would you buy a used car with DEA?
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Would you buy a used car with DEA? -
applying data envelopment analysis to purchasing decisions
Andreas Papagapiou, John Mingers and Emmanuel Thanassoulis This article shows how data envelopment analysis, conven tionally used for coin paring Decision Making Units, can he used to tackle the problem of comparing and u/tiinately choosing a particular product to purchase. This will he illustrated with two examples - choosing a new computer and buying a second hand car. DEA provides
much richer information about the product space than
This article shows that DEA, usually associated with
the evaluation of business units, can make a valuable contribution in this situation. The method will be illustrated through comparison of a set of 56 new
multimedia computer systems, and a set of 42 second hand cars.
other methods, and this can also be useful from the point of view of marketing and product development. -ooüoo-
Examining a set of alternatives in the presence of multiple criteria is one of the most common situa-
tions in Operational Research. In the context of purchasing, the problem is that of measuring one
product against another when each can be assessed on the basis of a number of criteria, and given that there is no adequate 'scoring system' that successfully integrates all the criteria into a single rating for
The link with Data Envelopment Analysis DEA was developed for measuring the relative effi-
ciency with which Decision Making Units (bank branches, schools, hospitals, government depart-
ments etc) transform inputs and outputs. The relative efficiency of a Decision Making unit is defined as the
ratio of the weighted sum of its outputs to the weighted sum of its inputs. The approach allows
each Decision Making Unit to choose a set of weights that maximise its own efficiency rating
without making its own or any other unit's efficien-
each product. This might arise at the level of the
cy rating greater than one. In a conventional
dised products, in which case the approach
efficiency frontier defined by the best observed units. All remaining Decision Making Units are
individual buyer who is looking at a set of standar-
proposed here should serve as a support tool to the decision making process without actually making the decision by nominating an 'ideal' alternative. It may
also arise in the context of corporate decisionmaking whereby a corporate buyer examines alter-
natives with a view to reconciling a diversity of present and future uses in one standardised purchase, or perhaps where a corporate marketing division is analysing market structures with a view to future product development. Conventionally, such problems have been dealt with
by techniques that come under the umbrella of multi-criteria decision making such as multi-attribute utility theory, analytic hierarchy processes, and dominance structures. These methods tend to
be normative in that they aim to generate (after
interacting with the decision maker) an 'ideal' alternative or a restricted subset of alternatives which
someho
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