Measuring Technical Efficiency and Returns to Scale in Taiwan’s Baking Industry―A Case Study of the 85 °C Company

Abstract

Under an intense internationally competitive business environment, it is important to understand the production efficiency of the baking industry, where efficient management is becoming increasingly important to ensure the sustainable development of the company. Thus, this study uses data envelopment analysis (DEA) to appraise the performance of a well-known baking company (85 °C) and uses input and output constructs to measure its technical efficiency and scale efficiency scores to understand the major reasons for efficiency losses from 2011 to 2016. The empirical results indicate that low technical efficiency is the major reason for lower pure technical efficiency, since the scale efficiency is higher than pure technical efficiency. This means 85 °C is still improving overall operating efficiency and space efficiency. Moreover, the results also show that the III-generation operations style is more technically efficient and pure-technically efficient compared to those of I-generation and II-generation. Furthermore, the company’s financial performance is dependent upon the producer’s ability to stay on the production frontier due to the result of a positive relationship between return on assets (ROA) and technical efficiency. Last but not least, this study shows that 85 °C can gain higher performance and efficiency by enhancing technical efficiency and reinforcing strategic alignments with business goals.