Supply-side inoperability input–output model (SIIM) for risk analysis in manufacturing systems

• We propose an approach that quantifies risk in manufacturing systems.
• The interdependencies present in manufacturing systems resemble economic systems.
• A systemic risk analysis is appropriate in manufacturing systems.
• Supply-driven inoperability is more appropriate than demand-driven.

This paper proposes a methodological approach in risk analysis of interdependent manufacturing systems which is based on Ghosh model - a variation of the Leontief input-output model. The proposed approach is able to quantify the impact of supply perturbations in a manufacturing system in terms of cost-price increase in production output due to increase in prices of value-added input brought about by degraded supply resulting from natural or man-made disasters and sudden policy changes. Unlike demand-driven perturbation models presented in literature, the supply-driven inoperability input-output model (SIIM) appears to be more relevant particularly in make-to-order manufacturing systems as demand is usually pre-determined and production costs typically increase when prices of inputs increase. An actual case study was carried out in a furniture manufacturing firm in central Philippines and three scenarios were presented to illustrate the proposed approach: (1) a sudden log ban in the location of the supplier, (2) increase in labor costs and (3) metal shortage caused by severe weather condition. Results show that supply perturbation of upstream processes does not impact downstream processes as long as these processes remain independent of the perturbed upstream process as described in firm's system structure and topology. This also shows that the magnitude of impact of non-perturbed process depends on its nature of interdependence of the perturbed process. The proposed approach is highly relevant for manufacturing practitioners in formulating and implementing mitigation and adaptation policies.