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Quantifying the Impacts of Industry Preparedness Strategies with a - - PowerPoint PPT Presentation
Quantifying the Impacts of Industry Preparedness Strategies with a - - PowerPoint PPT Presentation
Quantifying the Impacts of Industry Preparedness Strategies with a Risk-Based Input-Output Model Cameron MacKenzie and Kash Barker, PhD School of Industrial Engineering University of Oklahoma 19th International Input-Output Conference June
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What’s new
- Production decision for supply shortage
- Dynamic model
- Interdependent impacts of firm decisions
- Illustration of supply shortage
- Valuation of different mitigation strategies
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Production decision
Primary supplier suffers disruption Inventory on hand Constant elasticity
- f substitution
production function Profit Alternate supplier at increased cost
- 1. Reduce production
- 2. Use inventory
- 3. Buy from alternate supplier
- 4. Substitute a different input
Price
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Dynamic model
Time Firm’s production
Normal production Reduced production New equilibrium production
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Dynamic model
Time Firm’s production
Normal production Reduced production New equilibrium production
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Dynamic model
Time Firm’s production
Normal production Reduced production New equilibrium production
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Dynamic model
Time Firm’s production
Normal production Reduced production New equilibrium production
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Dynamic model
Time Firm’s production
Normal production Reduced production
T
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Sector inoperability
T i T T i
x y y q
, , , * ,
) (
Firm’s normal production Firm’s degraded production Industry i’s normal production Industry i’s inoperability
Direct impacts from supply shortage
J.R. Santos and Y.Y. Haimes, 2004. “Modeling the demand reduction input-output (I-O) inoperability due to terrorism of interconnected infrastructures.” Risk Analysis 24 (6): 1437-1451.
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Interdependent economic analysis
) ( ) (
1 * *
q A I q A q
k k total
total T
Q q x
T ,
n x 1 vector of inoperability Echelon n x 1 vector of inoperability for all industries Total production losses Normal production for each industry
x A x diag diag
1
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Illustration
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Case study of manufacturing sectors
Petroleum and coal products Primary metals Electrical appliances Chemical products
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Supply shortage
25% of computer supplies are not delivered Computer supplies
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Mitigation strategies
Inventory of computer supplies for 10 days Alternate supplier at 2x the price Substitute electrical equipment
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Multiregional model
- State
interdependency matrices from location quotients
- 62 industries per
state
- Commodity flows for
28 industries (Bureau of Transportation Statistics)
Outside system
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Assumptions of dynamic model
Normal production Reduced production
10 15 30 35
Number of days
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1 2 3 4 5 20 40 60 80 1 2 3 4 5 20 40 60 80 1 2 3 4 5 20 40 60 80 1 2 3 4 5 20 40 60 80
Production losses (millions of dollars) for each strategy
Legend 1 No mitigation 2 Inventory 3 Alternate supplier 4 Substitution 5 All mitigation strategies Direct (firm) losses Indirect losses
Primary metals Electrical appliances Petroleum and coal products Chemical products
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5 10 15 20 25
Millions of dollars
Production losses by industry (all mitigation strategies) Supply shortage in petroleum and coal firm Supply shortage in chemical firm
Most impacted Texas industries
Oil and gas extraction Construction Petroleum and coal Chemicals Banks and credit inter- mediation Rental and leasing Misc. professional activities Admin. and support services
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Sensitivity on inventory
As percentage of total production losses in base case (all mitigation strategies)
5 10 15 20 25 30 50 100 150 200 Number of days Percentage of losses Amount of inventory Primary metals Electrical appliances Petroleum and coal Chemicals
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Sensitivity on alternate supplier
As percentage of total production losses in base case (all mitigation strategies)
1 1.5 2 2.5 3 60 80 100 120 Ratio of alternate supplier price to primary supplier price Percentage of losses Cost of alternate supplier Primary metals Electrical appliances Petroleum and coal Chemicals
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70 80 90 100 110 Substitution ability Percentage of losses Ability to substitute electrical equipment for computers Primary metals Electrical appliances Petroleum and coal Chemicals
Sensitivity on substitution
Low High As percentage of total production losses in base case (all mitigation strategies)
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Sensitivity on recovery
As percentage of total production losses in base case (all mitigation strategies)
5 10 15 20 25 30 50 100 Number of days Percentage of losses Primary supplier's speed of recovery Primary metals Electrical appliances Petroleum and coal Chemicals
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Sensitivity on key parameters
10 20 30 100 200 Number of days of inventory 1 1.5 2 2.5 3 100 200 Ratio of suppliers' prices 100 200 Substitution ability
Low High
As percentage of total production losses in base case
Inventory Cost of alternate supplier Substitution Recovery of primary supplier
5 10 15 20 25 30 100 200 Number of days
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Conclusions
- Model
– Incorporates firm decisions into interdependency model – Explains dynamic production where recovery and firm’s mitigation strategies occur simultaneously – Assigns dollar value to each strategy
- Case study
– Reveals that direct impacts account for 50-80% of production losses – Demonstrates importance of inventory – Is most sensitive to inventory and recovery – Does not incorporate pre-disruption costs of strategies – Does not account for increased demand for competitors
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This work was supported by
- The U.S. Federal Highway Administration under
awards SAFTEA-LU 1934 and SAFTEA-LU 1702
- The National Science Foundation, Division of Civil,