Quality Management: Technical efficiency, benchmarking, and contracts

Open Access
Kim, Taeho
Graduate Program:
Agricultural Economics
Doctor of Philosophy
Document Type:
Date of Defense:
September 25, 2002
Committee Members:
  • Robert D Weaver, Committee Chair
  • Kalyan Chatterjee, Committee Member
  • David Christy, Committee Member
  • Jeffrey Stokes, Committee Member
  • contracts
  • benchmarking
  • categorical factors
  • Technical efficiency
Because production processes typically generate quantity flows and quality flows simultaneously, the management of quality flows is potentially as important as the management of quantity flows in the improvement of the performance of firms. Specially, quality is also important in the supply chain in that the quality of products produced by suppliers is one of the most important determinants of the quality of products produced by procurers. If this quality is perfectly observable in market, it will be priced and demanded optimally in the market. Procurers can obtain the quality that they want and suppliers must produce quality in a technically efficient manner. However, quality may be imperfectly observable to suppliers and procurers in the market. In this case, the quality market fails to price quality and there exist only low quality products in the market. As a result, procurers cannot obtain the quality that they want and persistent technical inefficiency exists in the quality production of suppliers. The objective of this dissertation is to examine the estimation and the improvement of technical efficiency generated from the imperfect observability of quality and the management of quality produced by suppliers in supply chain. To do so, Data Envelopment Analysis (DEA), benchmarking, and contracting are used as base methodologies. The first essay suggests a new estimation approach for technical efficiency based on DEA when controllable categorical factors are involved in the firm¡¯s production process. The new approach can estimate the efficient category level of controllable categorical factors. The second essay examines how firms can improve their technical efficiency by their own effort. New peergrouping approach and new benchmarking approach are developed to help technically inefficient firms improve their technical efficiency based on recent advances in DEA-based benchmarking. The third essay develops a contract model to coordinate the quality flow in supply chain and technical efficiency of suppliers under both symmetric and asymmetric information. Using a simulation method, it is illustrated how the incentives under contract work to manage quality flows and technical efficiency. The simulation results illustrate that incentives under contract can improve the performance of both procurers and suppliers.