Performance Evaluation of the Philippine Cement Industry: Application of DEA-MPI and VRSTE

Abstract

The increasing investment in infrastructure that fuels construction and cement demand makes it essential for cement manufacturers to assess their performance. This research is a first attempt to measure total productivity performance and efficiency growth pattern of the cement industry in the Philippines over the period of 2008-2012. DEA-MPI: Input Oriented Variable Returns to Scale (VRS) was adapted to measure total factor productivity (TFP) and calculate technical efficiency (TE) of cement manufacturing companies (CMCs) on a yearly basis. The study used asset, salaries and wages and power and fuel expense as input variables and total cement production and revenue as output variables.  The calculated MPI result showed a decrease in total factor productivity (TFP) growth throughout the period (1.047). It also reflected that the decrease in TFP was due to the decline in technological change (1.006) and efficiency change (1.041). It can be concluded that even though decrease in the mentioned attributes were experienced the industry is still considered to operate in maximum productivity. Moreover, efficiency summary reported that two of the eight DMUs were technically inefficient. The industry’s efficiency mean average score was analyzed to be at .997. The findings indicated that with the use of DEA one can determine that there is a need for a more effective policy to increase TE and maintain productivity of the Philippine cement industry.

Keywords: cement, DEA, Malmquist, VRS, productivity, efficiency