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ABP: Bill of Goods Using Commodity or Industry Events

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Candi Clouse, PhD
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INTRODUCTION

Analysis-by-Parts is a technique by which you can analyze the impact of an Industry's production/spending in separate components using multiple Events instead of using a single Industry Event. The purpose of this article is to explain how to analyze the Intermediate Input portion of an Analysis-by-Parts (ABP) using the Bill of Goods approach. Alternatively, the Intermediate Input portion of an ABP could be analyzed using an Industry Spending Pattern. 

 

Detailed Information

To perform an Analysis-by-Parts using a bill of goods approach, you will want to know Direct Labor Income and the budget details.  Many times, you may be given the budget by the client that outlines their total spending along different businesses or products. This information can be directly translated into Events in IMPLAN.  

STEP 1: INTERMEDIATE INPUTS

In the bill of goods approach, the researcher is presented with a budget.  This will either contain a list of companies from which the institution or industry purchases things (industries) or a list of the items that it purchases (commodities).  The researcher will need to first determine if they will be analyzing Commodity Output or Industry Output or some combination of these Event Types.

Enter each line of spending as either a Commodity Output Event or an Industry Output Event (use the questionnaire and chart in the linked article to for guidance).  There will be many different Event lines in the analysis.

For example, let’s say a small dog treat bakery is opening up in North Carolina.  We know what items they will purchase (commodities) to operate their store.  

  1. Since the purchased Commodities are known, each purchased Commodity will be entered as a Commodity Output Event.
  2. For each of these items, we will find the appropriate Commodity code.  Peanut butter is commodity code 3097 - Roasted nuts and peanut butter manufacturing, as an example.  Repeat this step for each of the Commodities that will be purchased.  
  3. All of the bakery’s retail purchases should have margins applied by leaving the selection of “Purchaser Price.” Since the place of production would likely be unknown, LPP should be set to SAM. Other purchases, such as local utility payments would have the selection of “Producer Price.” For payments to utility providers in the Region, LPP should be left at 100%.

A more simple alternative approach, as opposed to modeling each Intermediate Input, is to run the total Intermediate Inputs value through the Industry Spending Pattern that best reflects the industry you are modeling.

STEP 2: LABOR INCOME

Next, a Labor Income Event must be created either for Employee Compensation (EC), Proprietor Income (PI), or both.

In our example, the bakery will be run by the owner (proprietor) who will receive $75,000 in labor income and one additional employee that will receive $55,000.  A Labor Income Event will be created for each: $75,000 for Proprietor Income and $55,000 for Employee Compensation.  

 

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STEP 3: RUN THE ANALYSIS

Now either use the button at the top to select all or highlight each Event and drag them into your Group.  Next, hit run.

 

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STEP 4: INTERPRET THE RESULTS

When your analysis is complete, the results will show you the economic impact of all of the Events you entered which will include the Commodity or Industry Events  and the Labor Income Event(s).

In our Dog Bakery example, this investment has an economic impact of almost 15 jobs, $671,048 in Labor Income, $1.1 million in Value Added, and $2.7 million in Output.

  • The Direct and Indirect Effects are from the Commodity/Industry Events only and represent employment in the local industries directly affected (via a purchase from within the Direct business’s supply chain, in this example, the dog treat bakery).
  • The Labor Income events only create Induced Effects.

If you want to look at the results by Event, remember to use the FILTERS button and select which of the Events you would like displayed.

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STEP 5 –  MODIFYING RESULTS

Because your Direct Effects are from the Commodity/Industry Events, which only reflect the purchases made by the true Direct business, the Results should be modified. Your Direct Effects are actually Indirect Effects. 

  • Subtract you Direct Effect from your Direct Effect so the Direct Effects become all zeros. 
  • Add these Direct Effects to the existing Indirect Effects to generate a new Indirect Effect.
  • Define your Direct Effect

More information about categorizing effects can be found here and you can use the template for Recalculating the Direct Effects, in this case once you have moved your Direct Industry or Commodity purchases to the Indirect line. 

 

RELATED TOPICS

ABP: Introduction to Analysis-By-Parts

ABP: Analysis-by-Parts Using an Industry Spending Pattern Event with Labor Income Event(s)

ABP: Analysis-by-Parts with Manually Margining Bill of Goods

Hospitals: Modeling Private Hospital Impacts with Analysis-by-Parts

Hospitals: Modeling Public & Nonprofit Hospital Impacts with Analysis-by-Parts

Proving Analysis-By-Parts: A Comparison of Event Types

 

TEMPLATE

Recalculating Direct Effects

 

Written June 26, 2019

Updated April 6, 2021

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