This study shows how to use Hierarchical DEA model to evaluate the operational efficiency of manufacturing industry production line. We use nine TFT-LCD production lines in Taiwan with the data of 2001~2003 as the example. Our model can distinguish the inefficiency between upstream and downstream firms, and the method combines two DMUs into one which allows managers to evaluate the relative inefficiency between industries. Further, we show that the inefficiency of production chain was due to exclusion of scale inefficiency of upstream and downstream firms.

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