Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics

M. Udenio, J.C. Fransoo, R. Peels

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In this paper we analyze the strong sales dip observed in the manufacturing industry at the end of 2008, following the bankruptcy of Lehman Brothers and the subsequent collapse of the financial world. We suggest that firms’ desire to retain liquidity during these times prompted a reaction characterized by the reduction of working capital, which materialized as a synchronized reduction in target inventory levels across industries. We hypothesize that such a reaction effectively acted as an endogenous shock to supply chains, ultimately resulting in the demand dynamics observed. To test this proposition we develop a system dynamics model that explicitly takes into account structural, operational, and behavioral parameters of supply chains aggregated at an echelon level. We calibrate the model for use in 4 different business units of a major chemical company in the Netherlands, all situated 4 to 5 levels upstream from consumer demands in their respective supply chains. We show that the model gives both a very good historical fit and a prediction of the sales developments during the period following the Lehman collapse. We test the model’s robustness to behavioral parameter estimation errors through sensitivity analysis, and provide a comparison with experimental studies based on the ‘beer game’. We observe that the empirical data is aligned with experimental observations regarding the underestimation of the supply pipeline.
Original languageEnglish
Place of PublicationEindhoven
PublisherTechnische Universiteit Eindhoven
Number of pages35
Publication statusPublished - 2012

Publication series

NameBETA publicatie : working papers
ISSN (Print)1386-9213


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