destocking

Re-Active destocking is a reduction of the inventory when expected demand goes down.

Decisions for Active destocking in general are made by financial executives or general managers.

Active destocking explains why some companies can see a strong dip in sales while their end markets are fairly stable.

Re-Active destocking in general is done by the operational managers of the logistical activities, without additional instructions.

Active destocking refers to an active decision to reduce the inventory to sales ratio of a company.

During a Lehman Wave, firms start active destocking.

In general Active destocking is done following an autonomous, often financial decision by a company to improve its efficiency, free up cash and reduce its costs.

Active destocking should be distinguished from Re-Active destocking.

This discovery of Active destocking and the Lehman Wave can have important implications for manufacturing scheduling, inventory management, work force management and budgeting.

And while most books are sold through bookstores, the threat of universal destocking - and believe me the bookstores are "together" on this one - is very potent.

The term Re-Active destocking is relevant when it is used in connection with Active destocking.

The drop in end market plus the Active and Re-Active destocking created a giant damped wave, the so-called Lehman Wave.

The strong dip in the manufacturing industry seen at the end of 2008 was caused by cumulative and synchronized active destocking, triggered by the bankruptcy of Lehman Brothers.

Said bankruptcy created a sudden peak in the Libor interest rate, causing the banks to recall credit and companies to start freeing up cash by Active destocking, so reducing their stocks.

The terms Active destocking and Re-Active destocking were first used in an article about the Lehman Wave, published by Dutch researchers in 2009.

For example, the Agricultural Department of what was then British Kenya, when faced with the Wakamba who had marched on Government House as a protest against compulsory destocking in 1938, said:

When the customers of a company start Active destocking it is experienced by said company as lower demand and said company will respond by doing Re-Active destocking.

So the Lehman Wave can be described as a Synchronized Bullwhip caused by Active destocking, deepened by Re-Active destocking.

In the case of the Lehman Wave that started in September 2008 the single pulse is Active destocking, in this case a synchronized decrease in the target inventory-over-sales level along the entire supply chain.

Policy 'solutions' of this kind tended to favour erosion works (often paid for by labour inputs on the part of farmers themselves), terracing, reafforestation and pasture closure, implemented by compulsory destocking or exclusion from certain vulnerable areas.

The first described Lehman Wave was caused by global Active destocking and Re-Active destocking after the financial panic following the bankruptcy of Lehman Brothers on September 15, 2008.

When purely environmentally-dictated policies (such as forest closure or forcible destocking of pastures) do not work because the social context has been analysed insufficiently, force is often contemplated (or, in administrative language, better and tougher implementation and environmental protection).

When the sales of Automobiles suddenly dropped in Q4 2008 [3], the suppliers to the automotive producers not only had to absorb the decline itself, but also the corresponding re-active destocking in the whole supply chain that followed the declining end market.

The amplitude of the Lehman Wave is larger for a business that is further away from its end market than for a business that is closer to its end market, which difference is caused by cumulative destocking of the intermediate supply chain.