CBS develops experimental database of supply chains in the Dutch economy

17/05/2023 14:00 / Author: Masja de Ree

Production chains play a major role in the Dutch economy, but they are vulnerable to disruptions. Statistics Netherlands (CBS) is developing a database to understand the production chains for Dutch companies. The database is still in the experimental phase, but some initial analyses have recently been published. The article, which appeared in the publication ‘Supply chain networks in the Dutch economy’, also made it clear that CBS is keen to collaborate with partners in this field.

Understanding raw material chains

A 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 effects

Although 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 database

The 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.’

Data infrastructure for policy-makers

The supply chain database is first anonymised and then made available – in a secure environment – to researchers from universities and bodies such as public policy and research institutes. Those users can use the data to conduct analyses and to explore how a production ‘shock’ reverberates throughout the network. The database also makes it possible to identify which smart choices could make the chain more sustainable and what can be done to make the economy in a given region more robust. ‘We’re trying to create a data infrastructure that policy-makers can build on and that researchers can use to answer detailed research questions,’ says Buiten.

Enriching the database

The experimental database contains information about the Dutch economy and the firms that are registered here, ‘But that’s just the start,’ says Buiten. ‘Now we’re researching how we can enrich the database with information about imports and exports. Then we’ll need to link it to aggregated data from around the world, and that will make the potential analyses even more powerful.’ Data for 2018 are already available, with data on 2019 and 2020 expected later this year and 2021’s data set to appear not long after. ‘2020 and 2021 are interesting, because of the effects of the coronavirus crisis. By the time those data become available, the experimental phase of the database will be complete and we’ll be able to use the information for our official statistics.’

Getting a handle on complex problems

Buiten is fascinated by network theory. ‘The world is “networked”. How can we make that complex reality more manageable? How do we identify problems and opportunities? At CBS, we believe that these kinds of databases help us get a handle on the complex problems society faces, whether those relate to the energy transition or whether they are regional problems and dependencies caused by our desire to do a lot with limited space.’