Optimal system design series‐network DEA models

There is an urgent need in a wide range of fields such as logistics and supply chain management to develop effective approaches to measure and/or optimally design a network system comprised of a set of units. Data envelopment analysis (DEA) researchers have been developing network DEA models to measure decision making units’ (DMUs’) network systems. However, to our knowledge, there are no previous contributions on the DEA‐type models that help DMUs optimally design their network systems. The need to design optimal systems is quite common and is sometimes necessary in practice. This research thus introduces a new type of DEA model termed the optimal system design (OSD) network DEA model to optimally design a DMUs (exogenous and endogenous) input and (endogenous and final) output portfolios in terms of profit maximization given the DMUs total available budget. The resulting optimal network design through the proposed OSD network DEA models is efficient, that is, it lies on the frontier of the corresponding production possibility set.