Conceptualizing and Modeling Supply Chains in the Hazard Context

This chapter discusses the impact of natural and human-made hazards in the US economy as a whole and the US manufacturing industry in particular. Many studies that examine economic impacts of hazards consider the upstream impact of supply chain disruption. This chapter examines how the economy is affected by a disruption in supplies to determine the magnitude of the downstream effect, which is often referred to as the ripple effect. Additionally, the same analysis is conducted for the manufacturing sector in particular. The goal is to understand whether manufacturers are affected by the ripple effect to a relatively greater extent than is the case for the total US goods economy. This chapter provides evidence that the effect of hazards propagating through the supply chain exceeds that of the localized hazard impacts (i.e., direct impact in the geographic location where the hazard took place). This creates a fundamental incentive misalignment. The establishment within the supply chain that invests in mitigation efforts and experiences the hazard often does not directly experience the majority of the resulting net benefit. Thus, it is necessary that wider systems-level thinking is employed when an establishment along a given supply chain considers vulnerability to disruption and undertakes resilience planning.