Data Envelopment Analysis in Small and Medium Enterprises: A Study of the Australian Food, Beverages and Tobacco Manufacturing Industry

Abstract

Competitive pressures have led to growing interest in benchmarking small and medium enterprises (SMEs). We use Data Envelopment Analysis (DEA) to measure the relative efficiency of SMEs in the Australian food, beverages and tobacco manufacturing industry. Estimates of relative technical efficiency suggest that firms in this industry can, on average, produce the same level of output using approximately 20% less inputs. Estimates of relative cost efficiency suggest that firms can, on average, realise cost savings in the order of 32% by reducing both the level and mix of inputs. Tobit regression analysis is used to explain variations in efficiency levels as functions of firm and management characteristics. Results suggest that family firms and firms with low union membership are less efficient than other firms. We show how DEA can be used to identify appropriate role models (or peers) that can be used by poor performers to improve their efficiency.