Measuring retail network efficiency through data envelopment analysis

Using a major retailer in Australia as a case study, this paper applies the Data Envelopment Analysis (DEA) methodology to measure the performance of six stores run by the retailer in its distribution network. Cost figures and revenues for individual stores are used as variables in the analysis. Results show that out of the six stores investigated three are relatively less efficient in performance. Together with other analyses such as customer segmentation and spatial distribution of demand, it is apparent that overall efficiency of the retail network can be improved by either closing the less efficient stores or merging them with the others in the same service areas so as to streamline the network. Such rationalisation will help aggregate demand and improve vehicle utilisation with minor impact on current level of customer service.