Operational efficiency and its determinants in Indian machinery manufacturing firms

Abstract

Operational efficiency in machinery manufacturing industry is determined using data envelopment analysis models. Data pertaining to 137 machinery manufacturing firms in India for the years 2005–2010 is used for the study. The output can be increased by 30.12 percent without affecting the input levels. Fourteen among the firms identified efficient appear to be peers to other less efficient machinery firms. The slack of the input variables are identified and reducing these to zero is suggested to achieve 100% efficiency. A super-efficiency analysis of peer firms is conducted to identify the firms important for efficiency improvement. The gearing ratio contributes significantly to the inefficiencies, and attaining the efficiency frontier requires the follower of a peer firm to maintain constant values of the sensitive variables and reduce the input slack of the influencing variable to zero.