Supply–demand effectiveness: capturing the effects of supply and demand mismatches in operational performance measurement

Conventional data envelopment analysis models of technical efficiency measurement evaluated relative production technology but failed to consider market factors. Several recent studies defined the concepts of penalized output and penalized input to quantify demand mismatch and supply mismatch, respectively. Then they developed various models to involve the effect of these two market factors. But we notice that these articles did not provide an efficiency measurement with both supply and demand into account to evaluate or rank decision-making units. Referring to the research of demand effectiveness, this paper defines the operational performance considering both supply and demand mismatches as “supply–demand effectiveness”. Then we incorporate both penalized input and penalized output into BCC model to measure supply–demand effectiveness and derives propositions to reveal its properties and differences from traditional technical efficiency.