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Double Counting in Supply Chains

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Luke Daniels

Hello,

We are attempting to model investments along the electric vehicle supply chain. As an illustrative example consider the following modeling approach:  $1M to '333 storage battery manufacturing', $5M to '340 Automobile Manufacturing', and $2M to '402 - Retail - Motor Vehicle Dealers'.  We are concerned about double counting the economic impacts.

For example, automobile manufacturing has some battery commodity demand.  If we gave $5M to automobile manufacturing, would the model subsequently ramp up the manufacturing of batteries such that more battery components are required.  In other words, is the supply chain reactionary such that a change to a downstream industry changes the behavior of an upstream industry.

It is also our understanding that in this illustrative example, we would need to margin the automobile manufacturing so that it does not double count retail. Is this correct?

 

Thanks,

Luke

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    Candi Clouse, PhD

    Hello Luke!

    I am so sorry this post missed our radar! In an analysis like you outlined you are correct to be wary of double counting.

    Items purchased through a retailer or wholesaler (Industry 402), do not include the value of the good that was sold (ie the car). Output for retailers and wholesalers is just the mark-up cost, or margin, added to the price of the good for this service. 

    Industry 340 - Automobile manufacturing will include purchases of inputs, including batteries. So, the $5M you give to car manufacturing, will add to the battery industry through their purchasing. These purchases are going to reflect the national purchasing patterns of the industry, however, which is mostly made up of combustion engines with standard batteries, not the sophisticated ones in electric vehicles. In fact, only 0.26% of spending on Intermediate Inputs for car manufacturing is spent on batteries. You could use Analysis by Parts to eliminate the spending on batteries by the car manufacturing industry through their spending pattern.

    Remember one assumption of Input-Output is that we are always looking at backward linkages.

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    Luke Daniels

    Hi, I just wanted to check on this question as we are under a bit of a time crunch.

    Thanks,

    Luke

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    Luke Daniels

    Thanks Candi!

    I am a little confused still.  Let's say that we expect customers to spend $2M of automobiles.  We would model $2M to '402 - Retail - Motor Vehicle Dealers'. Does the value add, in this case, reflect the uptick in automobile manufacturing needed to meet the new demand?

    I would expect it to include the impacts of increased manufacturing, increased transportation, and increased retail. Is this not true?

    -Luke

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    Candi Clouse, PhD

    Luke - 

    It all depends on how you run the analysis. It sounds like what you want to see is the effect of the retail and the manufacturing, at which point you would run a Commodity Event in Automobile Manufacturing with the default Total Revenue selected. This way you will see direct spending in manufacturing, retail, wholesale, and transportation. Using an Industry Event will not get you there.

    The article Industry vs. Commodity Output will help you decide what kind of Event to run based on what you know about the purchase.

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    Luke Daniels

    We are interested in modeling an increase to automobile purchases equal to $2M, but we want to make sure our results capture every part of the supply chain.  In other words, we want the job impacts associated with manufacturing, sourcing of raw materials, and transportation all to be included in the final numbers.

    Would a commodity event achieve this?

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    Candi Clouse, PhD

    Luke - 

    If you run the $2M through a Commodity Event with the Specification 3340 - Automobiles, you will see Direct spending in manufacturing, retail, wholesale, and transportation. The Indirect effects will show in Industries like transmissions, engines, etc.

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