Article Designation: Refereed JTATM

Volume 6, Issue 2, Fall 2009

1


Volume 6, Issue 2, Fall2009

Measuring Production Efficiency of Readymade Garment Firms

R. N. Joshi* and S. P. Singh**
*Senior Lecturer, Department of Textile Technology,
SGGS Institute of Engineering & Technology, Nanded, India.
E-mail: [email protected]
**Professor of Economics, Department of Humanities & Social Sciences,
Indian Institute of Technology Roorkee, India.
E-mail: [email protected]

ABSTRACT

In the garment industry, performance of a firm is generally measured by using conventional
ratios such as number of garments per machine and per operator. These ratios cannot reflect the
firms performance completely as the firm does not use only a single input to produce a single
output. In this context, Data Envelopment Analysis (DEA) is an appropriate technique as it
considers multiple inputs and outputs to measure the production efficiency of a firm. This paper,
therefore, applies this technique to estimate the production efficiency of ready-made garment
firms. The study is based on the primary data collected from eight ready-made garment firms
located in Bangalore, India. To measure the efficiency, we consider the number of stitching
machines and number of operators as input-variables and the number of pieces of garment
produced as an output-variable. The DEA results show that under the CRS technology
assumption, average production efficiency score in the garment firms works out to be 0.75. This
indicates that on an average, the firms could increase their output by 25 percent with the existing
level of inputs. When the aggregate production efficiency is decomposed into pure production
efficiency and scale efficiency using VRS production function, it is found that on an average, the
firms are 17 percent inefficient in pure production efficiency and 9 percent in scale efficiency.
Most of the firms are found operating under decreasing return to scale. This indicates that the
production efficiency of the firms could be improved by adjusting the plant-size at the optimum
level. The study also concludes that the DEA is superior to the ratio analysis for performance
evaluation of the garment industry.

Keywords: Readymade Garment firm, Production efficiency, Data Envelopment Analysis, Ratio
Analysis


I. Introduction
Measurement of performance of a
garment firm in relation to other firms is
often carried out in the garment industry
through the ratio analysis such as number of
garments produced per operator or per
machine. Although this technique is simple,
the most important drawback is that it is
inappropriate in making decisions based on
one single ratio when there are many inputs
and outputs (Duzakn and Duzakn, 2007). It
cannot capture the effects of factors that
affect the performance of an organization
(Smith, 1990). In practice, no firm uses only

Article Designation: Refereed JTATM
Volume 6, Issue 2, Fall 2009
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a single input to produce a single output. In
case of garment industry, machine, operator,
raw material, energy, and other inputs are
required to produce a garment. In such
cases, Data Envelopment Analysis (DEA) is
an appropriate tool as it considers multiple
inputs and outputs to measure the
productivity and efficiency of any decision-
making unit.
Among the studies available on
garment productivity in India, Khanna
(1991), Khanna (1993), Bheda et al. (2001)
and Bheda (2002) have used partial factor
productivity measure to assess the
performance of the firms. Rangrajan (2005)
and Joshi et al. (2005) have also used the
number of garments per machine and per
operator to compare the productivity of
Indian garment industry with neighbouring
countries. These ratios cannot reflect the
overall performance of the garment firm and
are unable to compare the efficient firm with
the inefficient one. Such studies are of little
significance when the objective is to identify
and analyze maximally efficient firms in
comparison to the less efficient ones.
Earlier studies on the Indian textile
industry were carried out by the researchers
to assess the performance of individual firms
and to compare inter-firm performance.
Solankar and Singh (2000) measure the
relative efficiency of 40 Indian textile-
spinning firms for the period 1997-1998
using DEA-BCC model. Bheda (2002)
estimates productivity level of the Indian
apparel firms, using partial factor
productivity approach. Hashim (2005)
analyzes the productivity level and factor
price and their influence on unit cost growth
in the Indian cotton yarn and garment
industries for the selected states using panel
data for the period 1989-1997. In this study,
he estimates Total Factor Productivity
1

(TFP) by using translog multilateral index.
Bhandari and Ray (2007) measure the levels
of technical efficiency in the Indian textiles
industry at the firm level using DEA. The
data used for the study of the firms relate to
the production of cotton, woolen, silk,
synthetic and other natural fibers. Bhandari
and Maiti (2007) use translog stochastic
frontier production function (SFPF) to
measure the technical efficiency of Indian
textile firms. Joshi and Singh (2008)
examine the TFP growth in Indian textile
industry using Malmquist Productivity Index
(MPI).
The review of literature on the
subject clearly indicates that there has not
been any study conducted so far on the
Indian garment industry that has used DEA
to measure the production efficiency of
individual firms. Keeping this in view, this
paper measures the production efficiency of
eight readymade garment firms in
Bangalore. The paper is structured as
follows: Section II deals with the data and
variables, Section III describes the models
followed by results of the DEA analysis in
Section IV and Section V compares the
results of DEA with ratio analysis. The
findings are discussed in the final section.

II. Data Collection
The study is limited to garment
manufacturers that produce homogenous
product (i.e, bottoms). The DEA requires
that set of the firms being analyzed should
be comparable in the sense that each firm
utilizes the same type of inputs to produce
the same type of outputs (Odeck 2008). As
our selected firms are in the same business
and produce the same product, the DEA is
the most suitable technique to be applied for
assessing the relative efficiency of these
firms and setting benchmarking for the
inefficient firms to improve their
performance. Further, the sample of firms is
restricted only to the domestic
manufacturers as they are under similar
market, environmental and infrastructural
conditions. Since the study covers only
bottom manufacturers, the results may not
be directly applicable to manufacturers of
other garment products. The sample size is
small as some firms did not provide their
input-output data and other relevant
information. Earlier studies on the Indian
garment industry have also suffered due to
manufacturers concern about keeping the

Article Designation: Refereed JTATM
Volume 6, Issue 2, Fall 2009
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information confidential (Bheda et al., 2001;
Kalhan, 2008).
Initially, we approached Apparel
Export Promotion Council for getting
information on garment manufacturers. The
data provided by the council contained the
addresses and contacts of the manufacturing
units. It was difficult to identify the product-
wise details of the firms from that
information. We sent e-mails with a
questionnaire and datasheet to a large
number of manufacturers. We did not
received any positive response from them.
We also tried to contact the garment firms
through telephone in Delhi, Mumbai, and
Bangalore but failed to get a positive
response. Hence, the next choice was to use
the secondary databases like PROWESS and
Capitaline. These databases contain data on
a large number of manufacturing firms,
including readymade garments, but these
sources have balance sheet-based financial
data of individual companies and do not
have information about the number of
workers and number of machines of garment
firms. In India, only Annual Survey of
Industry (ASI) provides the data on number
of employees at aggregate level i.e. three
digit data. It provides the data at firm level
without disclosing the identity. However,
ASI does not have data on physical output
and number of machines of the selected
industry. Therefore, in order to estimate the
production efficiency, using physical data on
workers, machines and output, we attempted
to conduct primary data survey of individual
firms in Bangalore and got the information
only from eight bottoms manufacturing
units.
In DEA analysis, results are
influenced by the size of the sample. In this
case study, the number of garment firms is
eight which are consistent with the rule of
thumb provided by Banker et al. (1984) that
the DMU should be at least twice the sum of
input and output (Chu et al., 2008). The
sample size in this study is quite similar to
the studies of Majumdar (1994).

Selection of Variables
Selection of appropriate input and
output variables is an important stage in
DEA analysis. A model with a large number
of variables is one that may fail to have any
discriminatory power between firms because
most firms will tend to be rated efficient
(Majumdar, 1994). Therefore, input-output
variables in DEA analysis should be
minimal. We identify the potential input-
output variables by reviewing the earlier
studies on performance evaluation. Bheda
(2002) estimates the productivity of the
Indian garment firms using the number of
shirts produced as an output and the number
of stitching machines and operators used as
inputs. Hashim (2005) analyzes the
productivity level of Indian textile and
garment industries using gross output as an
output and employee, material, fuel
consumed, and capital as input variables.
Singh and Agarwal (2006) examine the TFP
growth and its components in the sugar
industry of Uttar Pradesh using installed
capacity, employee, raw material, fuel as
inputs and sugar production as an output.
Chien et al. (2007) also use total energy
generated as the output factor and total
installed capacity (MW), total number of
employees, and total production cost as
input factors to measure the productivity
changes in the Taiwan thermal power plants.


Table 1. Descriptive Statistics of Selected Variables

Variables Garments/year Operators Machines
Mean 417500 358 143
Max 1400000 1500 500
Min 200000 150 75
Std. Dev. 401452 462 144

Article Designation: Refereed JTATM
Volume 6, Issue 2, Fall 2009
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Table 2. Correlation Matrix and R
2
results of Selected Variables
Note: Figures in parentheses are error levels; * significant at 0.01 error level, n = 8

In the above reviewed studies of
different sectors, the number of employees
and installed capacity were used as input
variables and gross output as an output
variable. In our study, the number of
stitching machines and the number of
operators are selected as input variables; and
total pieces of garment produced as an
output variable. The production of the
garment industry fully depends on the total
number of stitching operators and total
number of stitching machines. We do not
find any difference in the raw material
consumption across firms, as most of the
firms are using automatic cutters for cutting
the fabric. Therefore, there is a minimum
wastage of fabric. We also do not find any
difference in energy consumption as almost
all firms have power driven machines. We
find that the electricity consumption per
stitching machine is almost equal in the
surveyed firms. Hence, we do not consider
the raw material consumption and energy
consumption as input variables for the study.
The descriptive statistics of input-output
data are shown in Table 1.
Correlation and adjusted R
2
analyses
have been conducted to know the extent of
variation in garments produced per year.
The results are shown in Table 2, which
indicates that the output is significantly
correlated with these inputs. About 99
percent of variations in the output variable
are explained by these explanatory input
variables.

III. Models Used
This paper applies DEA methodology
to measure the production efficiency
2
of the
garment firms located in Bangalore, India.
Using only observed output and input data
of the firms, this technique evaluates how
efficiently the inputs are converted into
outputs. According to literature, there are
two broad methodologies for measuring
technical efficiency-the econometrically
specifying stochastic frontier production
function (SFPF) and linear programming
based non-parametric DEA methodology.
The DEA methodology that we use in this
paper has some advantages over the SFPF.
First, DEA does not assume any specific
functional form for the production function.
Second, it does not make a priori distinction
between the relative importance of outputs
and inputs. Third, it is relatively insensitive
to model specification, i.e., the efficiency
measurement is similar whether input-
orientation or output-orientation is used.
However, DEA also has some limitations.
Compared with the stochastic frontier
method, the main disadvantage of the DEA
approach is that it does not provide
statistical tests for the estimated production
function (Zheng et al., 2003).


Correlation Matrix
Variables Garments/year Operators Machines
Garments/year 1
Operators

0.9908*
(0.000)
1
Machines 0.9952*
(0.000)
0.9976*
(0.000)
1
Regression Analysis
R
2
Adjusted R
2
F- Value Significance
(error)
0.991 0.987 281 0.000

Article Designation: Refereed JTATM
Volume 6, Issue 2, Fall 2009
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DEA technique was first formulated
by Charnes, Cooper and Rhodes (CCR) in
1978. In this model, the ratio of the
weighted outputs to weighted inputs for each
firm being evaluated is maximized (Charnes
et al., 1978). It is known as CCR model
based on constant returns to scale
3
(CRS).
Subsequently, Banker, Charnes and Cooper
(1984) proposed another model based on
variable return to scale
4
(VRS). In this
study, we use both CCR and BCC models.
For mathematical details of these models,
please see Coelli et al. (1998). Here, we
have discussed the input oriented
5
and
output oriented
6
models briefly. The
following notation is used in the description
of various DEA models discussed in this
section.

Overview of notations:
i
x = input vector of i
th
firm
i
y = output vector of i
th
firm
j
x = input vector of j firms, where N j ,......, 2 , 1
j
y = output vector of j firms, where N j ,......, 2 , 1
u = vector of output weights
= vector of input weights
= efficiency score corresponding to the input oriented models
1/ = efficiency score corresponding to the output oriented models
= vector of constants
Assume, there are data on K inputs
and M outputs for each of N firms. For the
i
th
firm, inputs and outputs are represented
by the column vectors
i
x and
i
y
respectively. The KxN input matrix, X, and
the MxN output matrix, Y, represent the
data for all N firms. Then, the efficiency of a
garment firm is defined as the ratio of
weighted sum of outputs to weighted sum of
inputs ) / (
' '
i i
x v y u . The optimal weights are
obtained for the i
th
firm by solving the
mathematical linear programming problem:


0 ,
,......, 2 , 1 , 1 / . .
), / ( max
' '
' '
,
v u
N j x v y u t s
x v y u
j j
i i v u
(1)
Solving this LPP allows finding values
for u and , such that the efficiency of firm
i is maximized, subject to the restriction
that efficiency for the rest of the firms is
smaller than or equal to 1. One problem with
this particular ratio formulation (1) is that it
has infinite solutions.

To avoid this, the next restriction is imposed , 1
'
i
x v which provides:

Article Designation: Refereed JTATM
Volume 6, Issue 2, Fall 2009
6

0 ,
,......, 2 , 1 , 0
, 1 . .
), ( max
' '
'
'
,
v u
N j x v y u
x v t s
y u
j j
i
i v u
(2)
The equation (2) is known as multiplier form of DEA. Using the duality in linear programming,
the envelopment model can be written as,
, 0
, 0
, 0 . .
, min
,
X x
Y y t s
i
i
(3)
where is a scalar and is a Nx1 vector
of constants. Equation 2 involves the
constraints based on number of firms, on the
other hand equation 3 involves the fewer
constraints based on the total number of
inputs and outputs. Therefore, the
envelopment model 3 is generally used
based on constant return to scale. The value
of is the efficiency score of the i
th
firm.
When the firm achieves =1, then that firm
is technically efficient.
The CRS assumption is only
appropriate when all the firms operate at an
optimal scale (Coelli et al. 1998). In the
garment industry, the restrictions on garment
trade under the Multi Fibre Agreement
7
have
been removed from 1
st
January 2005.
Specifically, the major markets like USA,
Europe and Canada have removed the
restrictions for the import of garments from
this date and these are the major markets for
the Indian textile and clothing industry.
From 2001, the restrictions on the
investment in plant and machinery
8
in the
Indian garment industry have been removed
under the National Textile Policy 2000.
Now, the major producers have started
producing garments on a large scale. Most
of the garment firms in India are micro and
small-scale. In this scenario, these firms
have to compete with the domestic as well
as global garment producers. Accordingly,
they need to adjust their scale-size of the
plant. Hence, to understand whether the
inefficiency in the firms is due to inefficient
utilization of resources or inappropriate
scale-size, we decompose the aggregate
technical efficiency into pure technical
efficiency and scale efficiency using the
BCC model. The BCC model can be written
by adding the convexity constraint
1 ' 1 N in equation (3) which gives the
equation;
, 0
1 ' 1
, 0
, 0 . .
, min
,
N
X x
Y y t s
i
i
(4)
where, N1 is an Nx1 vector of ones. The
above-derived models are input oriented
models. In this study, we prefer to apply the
output-oriented models because the
objective of garment industry is normally to
increase outputs rather than to decrease
inputs. This industry is an employment
generative industry with small investment
giving maximum value addition to the
textile sector. The industry has upward
linkages for the weaving industry. The
garment industry consumes 30 to 35 percent

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7

of fabrics produced by the weaving industry.
Hence, minimization of inputs will affect the
entire textile chain. In addition, 70 percent
of the garments produced are consumed in
the domestic markets and 30 percent are
used for export. We, therefore, use the CCR
and BCC models with output orientation.
The output oriented CCR model is as
follows,
, 0
, 0
, 0 . .
, max
,
X x
Y y t s
i
i
(5)
By adding the convexity constraint 1 ' 1 N in equation (5), the BCC output oriented model is
written as,
, 0
, 1 ' 1
, 0
, 0 . .
, max
,
N
X x
Y y t s
i
i
(6)
where, , 1 and 1 is the
proportional increase in outputs that could
be achieved by the i
th
firm, with input
quantities held constant. Here the 1/ is the
production efficiency of garment firms
which varies between zero and one. CCR
efficiency is considered as overall
production efficiency (OPE) and BCC
efficiency as pure production efficiency
9

(PPE). Scale efficiency
10
(SE) is measured
as a ratio of CCR efficiency to BCC
efficiency.

Figure 1. Overall Production Efficiency, Pure Production Efficiency and
Scale Efficiency of the Garment Firms
0
0.2
0.4
0.6
0.8
1
G
F
1
G
F
2
G
F
3
G
F
4
G
F
5
G
F
6
G
F
7
G
F
8
Garment firm
E
f
f
i
c
i
e
n
c
y

s
c
o
r
e
OPE
PPE
SE

IV. Results of DEA Analysis
The overall production efficiency,
pure production efficiency and the scale
efficiency of the individual garment firms
are shown in Figure 1. The overall
production efficiency scores suggest that a
firm is efficient if it scores equal to one
under constant return to scale (CRS)
technology. It can be observed from the
figure that out of eight firms, only one firm

Article Designation: Refereed JTATM
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(GF1) turns out technically efficient
(OPE=1). The remaining firms are
inefficient (OPE<1). For inefficient firms,
the CCR and BCC models identify a set of
reference efficient firms that can be used as
benchmark for them. We have used the
reference set
11
, peer count
12
and return to
scale obtained from the CCR model as
shown in Table 3. We find that the average
overall production efficiency of the eight
apparel firms is 0.75, which indicates that on
an average, these firms have to increase
output by 25 percent using existing level of
inputs.

Table 3. Reference Set, Peer Counts and Return to Scale of Garment Firms

The BCC model assumes the
variable return to scale (VRS) and the
measured efficiency is called pure
production efficiency (PPE). It indicates
how efficiently the inputs are converted into
outputs, irrespective of the size of the firm.
It is observed from the figure that out of
eight garment firms, three are efficient under
VRS technology (PPE=1). Average pure
production efficiency is 0.83, implying that
an individual firm is inefficient in
managerial performance by 17 percent. Out
of eight firms, GF3 is the most inefficient
firm that has scored the lowest score of 0.64.
This firm can follow the best practices of
firms GF1, GF2 and GF8 for improving its
efficiency. It is also observed from the
figure that the firm GF2 and GF8 obtain low
overall production efficiency, but have 100
percent pure production efficiency. This
clearly indicates that these two firms are
capable of converting its inputs into output
with 100 percent pure production efficiency,
but their overall production efficiency is low
due to low scale efficiency. This
demonstrates that if the effect of scale-size
is neutralized, firms GF2 and GF8 can
become efficient. Of the eight firms, GF1
positions best practice firm by comprising
highest peers count of five in the whole
sample. It achieves the most productive
scale size (OPE = PPE = SE = 1). Thus, it
can be a role model for most of the
inefficient firms. Best practices of this firm
can be followed as norms or benchmarking
by them to monitor their performances.

Table 4. Descriptive Statistics of Efficiency Scores


The scale efficiency scores of the
individual firms are shown in Figure 1. It is
observed that out of the eight firms, only
one firm (GF1) is scale-efficient. This firm
Garment
firm
Reference set Peer
Count
Return to scale
GF1 GF1 5 Constant return to scale
GF2 GF2 4 Decreasing return to scale
GF3 GF8, GF 2, GF 1 0 Decreasing return to scale
GF4 GF 8, GF 2, GF 1 0 Decreasing return to scale
GF5 GF 8, GF 2, GF 1 0 Decreasing return to scale
GF6 GF 2, GF 1 0 Decreasing return to scale
GF7 GF 8, GF 1 0 Decreasing return to scale
GF8 GF 8 4 Decreasing return to scale
Variables Overall production
efficiency
Pure Production
efficiency
Scale
efficiency
Mean 0.75 0.83 0.91
Min 0.63 0.64 0.70
Max 1.00 1.00 1.00
Std. Dev. 0.12 0.14 0.09

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operates at the most productive scale size
13

(MPSS). It is observed from Table 4 that the
average scale efficiency is 0.91, which
suggests that an average firm may have to
correct its scale-size by 9 percent to be
scale-efficient. The GF8 has the lowest scale
efficiency (SE=0.70) and operates under
decreasing return to scale. This firm may
decrease its scale-size in order to become
efficient under constant return to scale. It is
observed from Table 3 that all inefficient
firms are operating under decreasing return
to scale
14
. This implies that these firms have
excess production capacity that could not be
utilized efficiently in the year 2008. To sum
up, on an average, the selected firms have
deficit of 25 percent in overall production
efficiency, 17 percent in pure production
efficiency and 9 percent in scale efficiency.
It is suggested that the garment firms should
first give more emphasis on improving the
efficiency in converting the inputs into
output (PPE) and then on improving the
scale efficiency through adjusting the plant-
size at the optimum scale.

Target Setting for Inefficient Firms
DEA identifies input and output
targets for an inefficient firm to render it
relatively efficient. Each of the firms can
become efficient by achieving these targets,
determined by the efficient reference set for
that firm. The inefficient firm can become
technically efficient by maximizing the
outputs. The actual and target inputs and
output are given in Table 5.
Table 5. Actual and Target Inputs/Outputs of the Garment Firms (CCR Model)


It is observed that except GF1 all
remaining firms have to maximize the
outputs to operate at the level of the efficient
one. For instance, GF7 may have to reduce
the number of employee from 250 to 180
and needs to increase the number of
garments produced per year from 250000
pieces to 360000 pieces. On an average, the
garments firms have to increase the output
by 25 percent along with the reduction of 10
percent and 1 percent in operators and
machines respectively.

V. Ratio Analysis vs. DEA Analysis
The conventional efficiency
measurement in the garment industry
considers only a single input and a single
output. In case of the garment firm GF8 and
GF3 the garments per operator (GPO) are
933 and 1250 respectively as shown in
Table 6.
Here, if we compare the firm GF8
with GF3, the firm GF 3 is rated to be more
efficient as it produces a higher number of
garments per operator per year. This
analysis does not take into consideration the
other inputs like machine. In order to
produce a garment, the firm needs machine,

Firm
Codes
Actual Inputs/Outputs Target Inputs/Outputs
Garments/year

Operator
s
Machines Garments/year Operators Machine
s
F1 300000 150 75 300000 150 75
GF2 400000 230 120 460000 230 115
GF3 200000 160 80 320000 160 80
GF4 300000 225 100 400000 200 100
GF5 250000 180 90 360000 180 90
GF6 240000 170 90 340000 170 85
GF7 250000 250 90 360000 180 90
GF8 1400000 1500 500 2000000 1000 500
Geom. mean 332999 248 113 445682 223 111

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10

operator, raw material, energy and other
inputs. If we consider the other ratio, i.e.,
garments per machine (GPM), we find that
the firm GF8 has a relatively higher
productivity (2800 GPM) than that of GF3
(2500 GPM). If we compare the overall
production efficiency scores of these two
firms, we find that GF8 has a better
performance than GF3. Thus, the results
based on a single ratio may provide
misleading conclusions related to the
performances of a firm. In this context, DEA
is an appropriate technique, as it considers
multiple input-output variables to measure
the relative performance of individual firms.

Table 6. DEA efficiency scores and Ratio Analysis Indicators

VI. Conclusions
This paper estimates the production
efficiency of the eight garment firms located
in Bangalore, India using the DEA
technique. The empirical results suggest that
seven out of eight firms are technically
inefficient. That is, these firms have not
produced the maximum attainable output
using the available inputs and technology.
On an average, the firms have to increase
the actual production of garments by 25
percent to achieve the target outputs. In
addition, technical inefficiency has been
found due to both inefficient scale-size and
resource-utilization. The firms are 25
percent inefficient in overall production
efficiency, 17 percent inefficient in pure
production efficiency and 9 percent
inefficient in scale efficiency. It is suggested
that the garment firms should first give more
emphasis on improving the efficiency in
converting the inputs into output (PPE) and
then on improving the scale efficiency
through adjusting the plant-size at the
optimum scale. Most of the firms are found
to operate under the decreasing return to
scale. This shows that the firms have the
excess production capacity that could not be
utilized efficiently in the year 2008.
The DEA gives the overall
production efficiency, pure production
efficiency, scale-efficiency, benchmarks,
and inputs and output targets for the garment
firms. On the other side, the usual
performance indicators such as the number
of garments produced per operator or per
machine cannot provide the overall
performance evaluation. Therefore, results
based on a single ratio may provide
misleading conclusions related to the
performances of a firm. In this context, DEA
is an appropriate technique, as it considers
multiple input-output variables to measure
the relative performances of individual
firms.

VIII. Acknowledgments
We are thankful to the referees for
valuable comments and suggestions. We are
also thankful to Mr. Lokesh, a garment
consultant, for cooperation in collecting the
data.

Notes
Garment
Firm
DEA
Efficiency
score
Rank Garments
produced/
operator
Garments
produced/
machine
GF1 1 1 2000 4000
GF2 0.87 2 1739 3333
GF3 0.63 8 1250 2500
GF4 0.75 3 1333 3000
GF5 0.69 6 1389 2778
GF6 0.71 4 1412 2667
GF7 0.68 7 1000 2778
GF8 0.70 5 933 2800

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Volume 6, Issue 2, Fall 2009
11

1. TFP is a ratio of weighted sum of
outputs to the weighted sum of inputs
over a period.
2. Production efficiency means producing
the maximum quantity of output using
several inputs. We have used production
efficiency as a synonymous word for
technical efficiency.
3. Constant returns to scale arises when a
proportional increase in the value of all
inputs results in the same proportional
increase in outputs of the firm.
4. Variable return to scale is defined as the
output may change in the increase or
decrease in proportion to the change in
inputs.
5. The input orientation measures the input
quantities, which can be proportionally
reduced without changing the output
quantities produced.
6. The output orientation measures the
output quantities, which can be
proportionally expanded without
altering the input quantities used.
7. Multi Fibre Agreement was the
restrictions on import and export of
textile and clothing from 1974 to 1994.
The MFA was finally expired in 1994
and phased out in four phases during the
period 1995-2004. With the elimination
of all remaining quotas in textiles from
January 1, 2005, the textile and apparel
industries have now fully integrated into
the WTO. Now, buyers are thus free to
source textile and apparel in any amount
from any country. Suppliers are free to
export as much as they are able which is
subjected only to a system of national
tariff.
8. The Indian garment industry was
protected for small-scale industry until
2000. There were restrictions on the
investment in plant and machinery on
large scale in the industry.
9. Pure production efficiency is attributed
to efficient conversion of inputs into
outputs in which effect of plant-size is
neutralized.
10. Scale efficiency is the extent to which a
firm can take advantage of return to
scale by altering its size towards the
optimal scale.
11. A reference set is a set of efficient firms,
which acts as a reference point for
inefficient firms.
12. Peer count shows how many times an
efficient firm has been referred in the
reference set of inefficient firms. Best
practice firm will have a higher peer
count and can be considered as a
benchmark for the inefficient firms.
13. Most productive scale size is that size at
which a firm obtains 100 percent pure
production efficiency and scale
efficiency.
14. Decreasing returns to scale exists when
output increases less than the
proportional increase in the inputs.


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