Factor Analysis (FA) as Ranking and an Efficient Data Reducing Approach for Decision Making Units: SAFA Rolling & Pipe Mills Company Case Study

This article compares two techniques: Data Envelopment Analysis (DEA) and Factor Analysis (FA) to aggregate multiple inputs and outputs in the evaluation of decision making units (DMU). Dِata envelopment analysis (DEA), a popular linear programming technique, is useful to rate comparatively operational efficiency of DMUs based on their deterministic or stochastic input–output data. Factor analysis techniques, such as Principal Components Analysis, have been proposed as data reduction and classification technique, which can be applied to evaluate of decision making units (DMUs). FA, as a multivariate statistical method, combines new multiple measures defined by inputs/outputs. Nonparametric statistical tests are employed to validate the consistency between the ranking obtained from DEA and FA. Also, the results have been compared with PCA approach. SAFA Rolling & Pipe Mills Company’s data is used as a case study to consider the proposed approach in practical. Results of numerical reveal that new approach has a consistency in ranking with DEA.