Measuring the performance of retailers during the COVID-19 pandemic: Embedding optimal control theory principles in a dynamic data envelopment analysis approach

• Published in: Operations Research Perspectives Vol. 10; p. 100282
• Main Authors: Costa Melo, Isotilia, Alves Junior, Paulo Nocera, Callefi, Jéssica Syrio, da Silva, Karoline Arguelho, Nagano, Marcelo Seido, Rebelatto, Daisy Aparecida do Nascimento, Rentizelas, Athanasios
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-01-2023; Elsevier; The Authors. Published by Elsevier Ltd
• Subjects: COVID-19 pandemic; Data envelopment analysis (DEA); Dynamic cost efficiency; E-commerce; Humanities and Social Sciences; Optimal control theory (OCT); Retailing; Data envelopment analysis (DEA); COVID-19 pandemic; E-commerce; Retailing; Optimal control theory (OCT); Dynamic cost efficiency
• ISSN: 2214-7160; 2214-7160
• DOI: 10.1016/j.orp.2023.100282

•A data envelopment analysis (DEA) approach based on optimal control theory (OCT).•A novel dynamic total cost DEA-OCT model for measuring retailers’ performance.•Relative cost efficiency and benchmarking of retailers operating marketplaces.•Benchmarking traditional retailers with digital and physical sales (omnichannel).•Relative efficiency based on the integration of e-commerce into physical sales.
Traditional retailers (bricks-and-mortar) have been continuously increasing online sales. However, not all retail companies were able to respond to the increasing sales with the same efficiency level as their competitors. This paper aims to propose a dynamic model – incorporating principles of Optimal Control Theory (OCT) into a Data Envelopment Analysis (DEA) model - for measuring the performance of retailing companies’ cost efficiency. It also aims to contribute through the application by investigating the impact of the pandemic on companies from the most prominent developing market in Latin America, Brazil. Twenty-one companies publicly traded in the São Paulo Stock Exchanges (B3) between the third quarter of 2018 (3Q2018) and the third quarter of 2020 (3Q2020) were investigated. Also, six measures - initial inventory cost (IIC), final inventory cost (FIC), net operating income (NOI), cost of goods sold (COGS), cost of the purchased product (CPP), and plant, property, and equipment (PPE) – were considered. In this way, the findings have implications for researchers and practitioners. Practitioners can discover which competitor(s) is (are) adopting the best practices at each operational aspect (e.g., inventory cost). Additionally, the proposed method can be replicated in other markets (developing or not) and for other categories of retailing companies (e.g., small- and middle-sized). Further research directions are presented, and their implications are discussed.