THE CHEMICAL ECONOMY
By WALTER FEDOR, Senior Editor
Input/output now a planning tool
Land of learning puts a world of skill in the hands of business and industry in BOLDNBWA
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22 C&EN OCT. 16, 1967
Final demand is fast becoming a key word in the chemical industry. After many years of waltzing with immediate customers, the industry, like many other industries, has come to realize that the secret to growth is not the man next door, but instead, the fellows down the street—the ultimate consumers. Nothing happens unless they do something—and that something, simply stated, is buying. The seemingly simple act of buying triggers a whole chain of events which ultimately has one industrial group feeding upon the other. It becomes quickly apparent that events in one area bear directly and indirectly on other areas. These direct and indirect effects can be measured quickly through input/output tables, which are really a simulation of the economy. Such tables enable the planner to stand back and take a broad look at the economic order. But for a company to gain really useful information on its role in economic order, it must go beyond broad tables and construct input/output matrices specific to the company itself. Such information relates not just industries to an economy, but rather, a company to other industries—and in turn, the economy. At this point, input/output becomes more than an economic exercise and is a realistic planning model for a company. Until the American Chemical Society meeting in Chicago last month, not much had been said about specific input/output tables for chemical companies. There, J. M. Fuerst of Celanese presented a paper (coauthored by J. F. Dash and E. K. Rabitsch) describing an input/ output table now being used for planning at Celanese. The table is impressive. The mat has 287 sectors, compared with 85 sectors for the input/output structure of the American economy. The Celanese table may well be the largest corporate input/output table ever produced. And, it will be expanded to cover 500 sectors. The Celanese input/output table uses almost the same format as the more complex economic tables and includes interindustry flows and sums, intermediate demands, sales to final demand, and total gross output. The table follows classification rules set down in the Standard Industrial Classification manual. (And it is not easy to classify company customers that are engaged in several different businesses.) The core of the table is made up of sales and purchases by location. (Most companies should have these data on computers.) Once sales and purchases were classified by SIC numbers, Celanese constructed a basic dollar flow matrix. Next the company worked up a direct coefficient matrix. This shows the input of product in dollars needed to achieve sales of $100. Then an inverse coefficient matrix was built which measures the direct and indirect effect of changes in output. This inverse coefficient shows a true interindustry flow and has obvious planning uses. One major use of a company-specific table is to assure planning equilibrium, balancing future sales (output) and future purchases (input) which are required to meet the output targets. By comparing the projected coefficient with actual coefficients for 1966, changes in technology, prices, and markets can be uncovered through a total look, not a partial look at a company. Too, the input/output table can reveal raw material needs far enough in advance to allow negotiations for long-term contracts or plant building plans if necessary. Finally, the table can be used to keep abreast of opportunities to diversify within and without the company. Through these kinds of tables, Celanese's management can compare a series of opportunities to a series of matrices and choose those which best fit company objectives, goals, and strategies.
