Measuring downstream supply chain losses due to power disturbances

Area of Science:

• Economics
• Industrial Engineering
• Supply Chain Management

Background:

• Power outages in the U.S. disrupt economic activity and cause downstream supply chain disruptions.
• Indirect impacts include losses at firms unable to receive timely supplies due to supplier power disturbances.

Purpose of the Study:

• Examine the impact of power disturbances on the supply chain for manufacturing, durable goods manufacturing, nondurable goods manufacturing, and total private industry.
• Estimate indirect costs of power disturbances using simulation.

Main Methods:

• Measured impact using observations of value added before and after power disturbances.
• Tested four hypotheses related to power disturbance effects.
• Utilized simulation to estimate indirect costs.

Main Results:

• Power disturbances have a statistically significant effect on gross domestic product (value added), particularly in manufacturing.
• Manufacturing accounts for 36.8% of supply chain losses due to power disturbances, despite representing 12.8% of private industry value added.
• Nondurable goods manufacturing was most affected by supply chain power disturbances.

Conclusions:

• Power disturbances significantly impact supply chains across multiple industries.
• A disconnect exists between power grid reliability investors and those experiencing the majority of losses.
• Targeted improvements in power grid reliability are needed to mitigate economic impacts.