EASTERN ACADEMIC FORUM

Empirical Research on Logistics Enterprises Efficiency Based on

DEA
SHI Lan, WU Guangwei
School of Business Administration, Guangxi University of Finance & Economics, China, 530003
148391071@qq.com

Abstract: Efficient evaluation system on the basis of previous studies, the use of the data envelopment
analysis (DEA) method for the systematic analysis of the level and efficiency of influencing factors
listed logistics company's efficiency and build the evaluation of the efficiency of logistics enterprises in
China situation. First, the study concludes that the existing research results at home and abroad, and
based on the influencing factors of enterprise efficiency, build a logistics business efficiency evaluation
index system; Second, the 10 domestic listed logistics enterprises as the study sample, the use of DEA
method of sample enterprises technology efficiency, pure technical efficiency and scale efficiency of the
evaluation study, the results showed that: the scale of the low efficiency of logistics enterprises main
reason for inefficiency, pure technical efficiency is only part of the logistics enterprises impact further
proved that the DEA method in the evaluation of logistics of the scientific method and superiority of the
enterprise, the more in-depth evaluation of the efficiency of logistics enterprises have a greater practical
significance.
Keywords: Data envelopment analysis (DEA), Logistics, Technical efficiency

The Performance evaluation of logistics enterprises is in fact the study of the economic benefits and
efficiency of logistics enterprises. At present, there are mainly four method of quantitative performance
evaluation: Activity-based costing, Analysis Hierarchy Process (AHP), index of tree, and DEA. (1) The
biggest advantage of DEA is it does not need to determine the explicit expression of the relationship
between the input and output. Instead, by using the observed effective sample data and the linear
programming techniques to determine the effective frontier, DEA can get the information of the relative
efficiency of each decision-making unit. DEA is highly objectivity, because it excludes a lot of
subjective factors. (2) Several practices of both domestic and foreign logistics enterprises have proved
that the performance evaluation of logistics companies get better results by using the DEA.

1 Introduction of Data Envelopment Analysis

1.1 Origination of Data Envelopment Analysis

Data envelopment analysis (short for DEA) is an efficient analysis method. The French quantitative
economist Farrell (1957) first used DEA to measure the efficiency. He used “the best practice frontier”
to determine whether the decision-making unit is effective.
In 1978, the well-known operations researcher--Professor Charles Burns from the University of Texas in
the United States, W.W.Cooper and E.Rhodes formally proposed a new field of operations research:
Data envelopment analysis, the model of which is referred to the C2R model. The model is used to
evaluate the interdepartmental relative effectiveness (therefore known as the DEA efficient). Since the
establishment of the first DEA model - C2R model (also known as CCR model), the related theories are
being further studies and increasingly used. From the application of the relative efficiency and
effectiveness evaluation, to the application of the economic system modeling and parameter estimation,
to the application in the analysis of costs, revenues and profits forecast and early warning system
classification and control, DEA method has now become an important and effective analysis tool and
means in many scientific fields like management, systems engineering, decision analysis, and evaluation
techniques. Thus, the research of DEA has attracted a number of scholars. Meanwhile, researchers,
research institutions and scholars from other fields but with close ties to the DEA invested a lot of

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scientific researches in DEA. A lot of scientific achievements have been made. These new developments
not only supplement the theoretical and practical application of the DEA, but also combined DEA with
other different mathematical methods to get more comprehensive analysis and detailed results in the
practical application.

2 Basic Principles and Models of DEA

2.1 Basic principles of DEA

DEA is an evaluation means which based on the concept of relative efficiency, uses convex analysis and
linear programming method as tool. DEA uses mathematical programming models to calculate and
compare the relative efficiency of the decision-making unit, and makes evaluation for the evaluation
objects. DEA can fully consider the optimal input-output program for the decision-making unit, thus,
could ideally reflect the information and features of the evaluation object. Meanwhile, DEA has its
uniqueness when evaluating the multi-input-output in complex system.

2.2 Introduction of C2R model

The C2R model is the most basic model of DEA. C2R model contains the cone axiom of axiom system,
therefore, decision-making unit could proportional increase investment elements to expand output,
which means the size of the decision-making unit does not have an impact on the efficiency. That is to
say if a decision-making unit is valid for the DEA (C2R); it is also valid for technology and scale. C2R
evaluation model:

There are many problems in the actual situation which may not strictly satisfy the assumptions of the
C2R model. When the decision-making unit is not in the best scale, technical efficiency and scale
efficiency would mixed up and manifested comprehensive efficiency. When the θ value of a
decision-making unit is not equal to 1, we cannot directly see whether it is due to the non-effective
technology or the non-effective scale. To further identify the reasons that affect the operational
efficiency, pure technical efficiency analysis is needed.

3 Case Study of DEA in the Logistics Industry

According to the DEA selection requirements about the decision making unit DMU, after careful
screening of the two major Stock Exchange Markets in Shanghai and Shenzhen, the author selected 10
logistics enterprises to apply the DEA method. These 10 companies are listed in the following table:

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Table 1 Sample enterprises

Stock Belongs Province /
Company Name Location Main business
code City /District
Bohai Logistics 000889 Northern part Qinhuangdao Overland logistics
TielongLogistics 600125 Northern part Dalian Overland logistics
Dudley shares 000996 Northern part Harbin Overland logistics
Wuhua Shares 600247 Northern part Jilin Overland logistics
Sinotrans Development 600270 Northern part Beijing Aviation Logistics
China Shipping Development 600591 Central Shanghai Sea / Water Logistics
Shanghai Airlines 600591 Central Shanghai Aviation Logistics
Hainan Airlines 600221 Southern part Hainan Aviation Logistics
Baiyun Airport 600004 Southern part Guangzhou Aviation Logistics
COSCO Shipping 600428 Southern part Guangzhou Sea / Water Logistics

First, using SPSS software to analyze the 10 participating logistics enterprises’ basic situation from 2008
to 2012, the obtained results are shown in the following table.

Table 2 Input and output data sample statistical description

Input and output values In 2008 In 2009 In 2010 In 2011 In 2012

Profit from principal operations 347432628.3 451159672.5 626335376.4 1574223730 1420899624

Fixed assets ($) 1425060987 2861361283 2211699233 5902108999 6284910239

Mean
Cost of principal operations ($) 573743891.9 792762647.6 1080167690 3086053008 3707289691
Number of employees (person) 1924 1959 1963 4995 5838
Executive compensation ($) 1212825 1632868.8 2107837.5 3539880.5 3926131.6

Profit from principal operations 1433592735 1908679851 2435854784 6617045547 7645101680

Fixed assets ($) 7497669207 19882777780 9545309706 26478960876 28476899186

Maximum Cost of principal operations ($) 3098505564 3603867298 3906965766 25216548090 31485592031
Number of employees(person) 7847 7897 5572 40215 40388
Executive compensation ($) 2720000 4635000 7710000 23850000 24850000

Profit from principal operations 23931616 -88858811 53583959 76288800 -5168279

Fixed assets ($) 200648997 202167461 234863301 259480261 313662001

Minimum
Profit from principal operations 46819582 54297889 63173009 67437170 67891507
Number of employees (person) 68 85 139 90 99
Executive compensation ($) 442800 603000 589000 890200 982800

DEA software DeaP2.1 is used to analysis data in this article. According to the previously introduced
DEA data model C2R, the author input 10 PARTICIPATING logistics enterprises’ sample data from
2008-2012 into the analysis software (The input and output data of each DMU was sorted out from the
annual statements released by enterprises), you can get the efficiency value of these 10 logistics
enterprises. The software calculation results are shown in Table 3, the data in the table contains the
technical efficiency of the enterprises from 2008 to 2012. Pure technical efficiency of the sample
enterprises and scale efficiency values are shown in Table 4.

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Table 3 Comprehensive technical efficiency value of the PARTICIPATING logistics enterprises (2008-2012)
Year
In 2012 In 2011 In 2010 In 2009 In 2008
Company name
Bohai logistics 0.610 0.432 0.496 0.437 0.331
Tielong logistic 0.611 0.574 0.651 0.738 0.621
Dudley shares 0.308 0.429 0.401 0.384 0.297
Wuhua shares 0.370 0.335 0.420 0.389 0.239
Sinotrans Development 1.000 1.000 1.000 1.000 1.000
China Shipping Development 1.000 0.862 0.722 0.392 0.303
Shanghia airlines 1.000 1.000 1.000 1.000 0.045
Hainan airlines 0.399 0.513 0.541 0.809 0.717
Baiyun airlines 0.786 0.900 0.849 0.912 0.693
COSCO Shipping 1.000 1.000 1.000 1.000 1.000
Industry average 0.678 0.676 0.707 0.692 0.515

Table 4 P TE and SE Table of PARTICIPATING logistics enterprise

Annual data In 2012 In 2011 In 2010 In 2009 In 2008
Company name PTE SE PTE SE PTE SE PTE SE PTE SE
Bohai logistics 0.726 0.840 0.553 0.781 1.000 0.496 0.587 0.744 0.543 0.610
Tielong losgistics 0.730 0.837 0.703 0.816 0.858 0.758 0.953 0.775 0.873 0.711
Dudley shares 1.000 0.308 1.000 0.429 1.000 0.401 1.000 0.384 1.000 0.297
Wuhua shares 1.000 0.370 1.000 0.335 1.000 0.420 1.000 0.389 1.000 0.239
Sinotrans Development 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
China shipping
1.000 1.000 0.965 0.894 1.000 0.722 0.399 0.982 0.325 0.931
development
Shanghai airlines 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.508 0.088
Hainan airlines 0.732 0.546 0.715 0.717 0.774 0.699 1.000 0.809 1.000 0.717
Baiyun airport 1.000 0.786 1.000 0.900 1.000 0.849 1.000 0.912 1.000 0.693
Cosco shipping 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000

Table 5 statistics various types of evaluation of efficiency values of participating logistics enterprises
from 2008-2012. We can see from the table that during these five years, the average efficiency of 10
participating logistics enterprises are divided into 0.515, 0.692, 0.707, 0.676, 0.678, not very high, in the
middle to upper level, indicating that there is till much room for improvement for the overall efficiency
of China's logistics enterprises.

Table 5 Various types of evaluation of efficiency values of participating logistics enterprises

Year In In In In In
Evaluation value 2012 2011 2010 2009 2008
Technical efficiency 0.678 0.676 0.707 0.692 0.515
Pure technical efficiency value 0.874 0.911 0.954 0.912 0.875
Scale efficiency 0.774 0.745 0.702 0.779 0.586

During the five years from 2008-2012, the average value of Pure Technical Efficiency (PTE) is the
highest among the three average efficiency, higher than the average technical efficiency (TE) and scale
efficiency (SE). It can be inferred that low scale efficiency or scale inefficiency is one of the main

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reasons for inefficient logistics enterprises. Scale inefficiency indicated the irrational allocation of
resources in China’s logistics enterprises, smaller scale of enterprises amounted to less than the level of
economies of scale. Another possible cause for China’s logistics enterprise inefficiency is the low pure
technical efficiency (PTE) or inefficient pure technical efficiency, but compared to the PTE inefficiency,
the impact of SE inefficiency has smaller impact on the efficiency of enterprise.
Careful observation of Table 3, Technical efficiency TE=1 illustrates that the two companies are
technically efficient in these five years. Shanghai Airlines technical efficiency value is 1 from 2009 to
2012, which means it is technically efficient in the four years. In 2008, the Shanghai Airlines technology
efficiency value is low, only TE= 0.045. In order to further analyze of the reason we inquired the other
related data in 2008 and compared it with other year’s data of the same type. We discovered that
Shanghai Airlines’ pure technical efficiency and scale efficiency is also relatively low in 2008;
especially scale efficiency, which indicated the low technical efficiency in 2008 is due to the poor scale
efficiency. Next, let’s compare the input and output value of Shanghai Airlines in 2008 and 2009. The
enterprise’s fixed assets in 2008 is $1,332,877,204.00, fixed assets in 2009 is $19,852,777,780.00, the
fixed assets in 2009 increased more than 14 times in 2008. Accordingly, when other input index data
changes little, the main business of the enterprise profits grow with the growth of fixed assets. The main
business profit in 2008 is $ 23,931,616.00; main business profit in 2009 grows to $ 651,082,889.00. The
profit growth rate reached more than 26 times. The author can deduced from these data that the overall
size of Shanghai Airlines in 2008 failed to achieve the degree of economies of scale. Small scale means
enterprise scale inefficient. The direct impact of the low scale efficiency on the enterprise in 2008 is the
embodiment of comprehensive technical inefficiency. In 2009, the enterprises increased investments to
expand the scale of operation, fixed assets increased more than 14 times in 2008. The growth of the
scale makes the growth of scale efficiency of enterprise achieve the ideal of economies of scale. Thus
the technical efficiency of Shanghai Airlines increased in 2009, the annual comprehensive technical
efficiency is effectively.
Take Bohai Logistics as another example. The Bohai Logistics’ technical efficiency (TE) is 0.496 in
2010; the pure technical efficiency (PTE) is 1, scale efficiency (SE) is 0.496. However, in 2011,
technical efficiency (TE) is 0.432, pure technical efficiency (PTE) is 0.553, and scale efficiency (SE) is
0.781. Bohai Logistics technical efficiency in 2010 and 2011 are technical inefficiency (TE2010<1,
TE2011<1). Reasons can be found after analyzing the two years’ enterprise technical inefficiency. In
2010 the pure technical efficiency of the enterprises is efficient (PTE2010, =1), enterprise technical
inefficiency is mainly affected by the inefficient scale efficiency (SE2010 <1); in 2011, the technical
efficiency inefficient is mainly affected by the pure technical efficiency inefficient. (PTE2011<SE2011
<1) Dudley Shares, Wuhua Shares, and Baiyun Airport’s five-year pure technical efficiency is efficient
(PTE=1). However, due to the inefficient scale efficiency (SE<1), the ultimate enterprise technical
efficiency is inefficiency (TE<1). This shows that the major source of enterprise’s technical efficiency
inefficient is the inefficiency of the scale efficiency. Therefore, enterprises should be targeted in
adjusting the scale, the resource allocation, and strive to achieve the scale economy in order to achieve
the technical efficiency of enterprises.

4 Suggestions to Improve the Efficiency of the Logistics Enterprises

According to the empirical analysis of the logistics enterprises, we can reach to the conclusion that the
firm size, the asset-liability ratio, the concentration of the business, corporate human resources level,
remuneration level, and other factors haves significant influence on the efficiency of enterprises. Here
the author offered several suggestions on how to improve enterprise efficiency in fixed macro
environment:
(1) Appropriately expand the scale of assets, which enables the company to achieve scale economy.
(2) Improve the level of human resources; enhance the core competitiveness of enterprises.
(3) Reasonable control the asset-liability ratio, strengthen financial management.

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(4) Implant salary compensation and other incentives.

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