A Flexible Time-to-Build Model of Supply Chain Disruptions

Abstract Accepted by: Aris Syntetos This paper examines the impact of temporary supply chain disruptions in a general equilibrium model with multiple stages of production for capital goods and a flexible time-to-build structure. Production disruptions at one or more stages result in declines in overall shipments and increases in the ratios of unfilled orders and work-in-process inventories to shipments. The model is calibrated to industries in durable goods manufacturing during the Covid-19 pandemic, and is shown to generate realistic dynamic responses to temporary production disruptions. Consistent with the data, an unanticipated 1-month disruption to upstream production results in a decline in shipments and an increase in the ratio of unfilled orders to shipments lasting more than 6 months.