ACCTG 323 Question 4 continued: b) Use the two lower graphs to explain why store 7 is inefficient under CRS but efficient under variable returns to scale (VRS). Explain which output does it favour. (5 marks) c) Explain why store 1 has a lower score under the input VRS than output oriented VRS. Explain which output does it favour. (5 marks) d) Information is provided below for store 7 which has a CRS efficiency of 90%. output orientation, CRS Peer for 7 Lambda Classification DMU Category Original Target Radial Non-radial 9 1.333333 DRS 7 FTE staff 80 80 0 -2E-06 FTE staff 60 0.9 Phones 160 280 17.77778 102.2222 Phones 210 Plans 720 800 79.99999 -1.2E-05 Plans 600 The box on the right shows the lambda, returns to scale classification together with values for the input and outputs for its only peer, store 9, under CRS for an output orientation. Using this information, show how the target values are calculated for store 7 using the lambda value for peer store 9 under an output orientation. Also show how the radial and non-radial values for store 7 targets are calculated. Explain what these targets and the classification as DRS mean (you may find the CRS and VRS graphs helpful). (10 marks) e) The stores have been roughly grouped into urban and rural categories which are shown in the fifth column of the DEA results table at the beginning of this question. Using the topmost graph, explain how using a categorical model will change the CRS results using a store that becomes efficient, one whose efficiency will improve and one whose efficiency does not improve. (4 marks) f) Vock have recently developed three measures of store quality: customer satisfaction %, a mystery shopper score and how long customers have to wait to be served. The SMT want to assign different weightings to these and would like to combine all three measures into a single measure. Briefly describe a method to do this and how this composite measure could be incorporated into a DEA analysis. (6 marks) (Total for Question: 40 marks) Page 9 of 9ACCTG 323 Question 4: Vock is a retailing mobile phone company that has 180 stores throughout New Zealand. Its main sales products are mobile phones and phone plans. The main resources in the stores are the number of staff. Other costs such as occupancy and utilities are considered by the senior management team (SMT) to be uncontrollable by store managers. A temporary analyst at Vock had been experimenting with Data Envelopment Analysis (DEA) using a sample of 12 stores and has done a number of analyses for the SMT but has now left to go overseas. You have been asked to examine the work she had done and explain this to the SMT. You look through her work and find the following graphs and some results using the PYDEA software. Phone stores 12.0 CRS VRS 10 0 DMU Input Output Category 1 55.6% 61.1% 83.8% 8.0 72.2% 98.2% 72.8% 11 100.0% 100.0% 100.0% N + W Plans sold / FTE staff 6.0 77.5% 91.7% 78.5% 8 5 68.8% 91.3% 69.1% 10 4.0 6 100.0% 100.0% 100.0% IN 90.0% 100.0% 100.0% IN 20 . 12 8 66.3% 96.5% 69.6% 9 100.0% 100.0% 100.0% IN 10 45.0% 91.7% 45.0% 2.0 4.0 6.0 8.0 10.0 11 82.5% 100.0% 100.0% N NP Phones sold / FTE staff 12 100.0% 100.0% 100.0% Mobile phones sold Plans sold 600 800 12 700 500 600 .9 400 500 nes sol 300 400 . P 5 200 001B 300 200 . 2 100 10 12 100 o 20 40 60 80 100 20 40 60 80 100 FTE staff FTE staff Required: a) Referring to the topmost graph and results next to it (ignore the category column for this question): i. Explain the key features of DEA using the constant returns to scale (CRS) model only. You should explain which stores comprise the frontier and using an inefficient store (other than 7), explain its CRS efficiency score, its target values and peer stores. ii. Comment on store 12 and its efficiency classification as 100% under CRS. (10 marks) Page 8 of 9