Understanding raw material chainsA production chain or supply chain is a chain of raw materials, products or services that are necessary in order to deliver a finished product. Supply chains are now longer than they were ten years ago, making them more vulnerable. ‘We saw that in 2021, for example, when the Suez Canal was blocked by a stranded ship,’ CBS researcher Gert Buiten remembers, ‘and we saw empty supermarket shelves in the Netherlands. The same thing happened during the coronavirus crisis, when we saw how difficult it was to scale up different production chains to meet the increased demand for medication and face masks.’ Geopolitical developments can also put pressure on production chains, for example if a country is only willing to supply to its allies. ‘A better understanding of supply chains – both within the Netherlands and ultimately also globally – could solve part of the problem,’ Buiten believes. ‘Our new experimental database will help us achieve that understanding.’
Studying network effectsAlthough the official statistics already included supply chains, they only looked at sector-level chains. ‘An input-output analysis can take that as a starting point to suggest how a change in consumption within one sector filters through into other areas of the economy,’ says Buiten. ‘But a single company in a chain can also have a major impact on the economy.’ This realisation has triggered more interest in production networks at the level of individual firms in recent years. CBS has collated these analyses in a single statistical file. As Buiten explains, in complex networks, small changes can have significant consequences – for better and for worse. One negative effect was demonstrated in Japan, when a small business was hit by an earthquake. ‘That company produced little rubber rings that only cost a few cents each, but those rings were an essential component of the Japanese automobile industry, which ground to a halt for a while following the earthquake. In the context of something like the energy transition, the challenge is to investigate which small changes could have big positive effects.’
The strength of the databaseThe new database consists of an anonymised list showing which company supplies which product to which other company, and so on throughout the chain. ‘Then you can string data together like beads,’ Buiten explains. ‘In essence, our database is very simple. Its real strength is in the analyses you can produce from it.’ The published article gives examples of those analyses.
The graphic above represents the entire Dutch economy. As Buiten notes, ‘You can see that 50% of production flows directly from the starting point to the endpoint. One-third of production takes place at in-between points; those are in the longer supply chains. Many of those in-between points are in manufacturing, but there are also things like the services you need to create a finished product. One general conclusion from this initial publication is that classifying links in the production chain as starting points, in-between points and endpoints generates a deeper understanding of how the domestic production network functions.’