Production stability in a supply-chain environment

There is evidence that the growth rate of GDP in the United States stabilized in 1984 and improvements in production management are frequently cited as a source. This paper defines the quality of production as the scale of the firm's production shock and assumes that the firm can exercise control over the scale of the shock. The firm is assumed to operate in a supply-chain environment and the question of interest is what, if any, influence the adoption of more reliable production techniques by a single firm has for aggregate volatility. The results indicate that the adoption of more reliable production techniques by a single firm typically have minor effects on aggregate volatility because the benefit dies out rapidly as the product moves downstream. The exceptions are those cases in which the firm adopting the improved technology lies near the end of the chain. There is also some benefit when deliveries of materials to the initial firm in the production chain stabilize.