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

Research output: Book/ReportReportAcademic

133 Downloads (Pure)

Abstract

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 the de-stocking hypothesis against an alternative model. Finally, we observe that the empirical data is aligned with experimental observations regarding human behavioral mechanisms concerning target adjustment times.
Original languageEnglish
Place of PublicationEindhoven
PublisherTechnische Universiteit Eindhoven
Number of pages25
Publication statusPublished - 2013

Publication series

NameBETA publicatie : working papers
Volume438
ISSN (Print)1386-9213

Fingerprint

Empirical modeling
Credit crisis
Bullwhip effect
Supply chain dynamics
Supply chain
Industry
Parameter estimation error
Working capital
Manufacturing industries
Alternative models
Sensitivity analysis
Dynamic demand
Consumer demand
Liquidity
Bankruptcy
The Netherlands
Prediction
Empirical data
Robustness

Cite this

Udenio, M., Fransoo, J. C., & Peels, R. (2013). Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics. (BETA publicatie : working papers; Vol. 438). Eindhoven: Technische Universiteit Eindhoven.
Udenio, M. ; Fransoo, J.C. ; Peels, R. / Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics. Eindhoven : Technische Universiteit Eindhoven, 2013. 25 p. (BETA publicatie : working papers).
@book{63800647401c4847b2bdbab7ed4ef02b,
title = "Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics",
abstract = "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 the de-stocking hypothesis against an alternative model. Finally, we observe that the empirical data is aligned with experimental observations regarding human behavioral mechanisms concerning target adjustment times.",
author = "M. Udenio and J.C. Fransoo and R. Peels",
year = "2013",
language = "English",
series = "BETA publicatie : working papers",
publisher = "Technische Universiteit Eindhoven",

}

Udenio, M, Fransoo, JC & Peels, R 2013, Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics. BETA publicatie : working papers, vol. 438, Technische Universiteit Eindhoven, Eindhoven.

Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics. / Udenio, M.; Fransoo, J.C.; Peels, R.

Eindhoven : Technische Universiteit Eindhoven, 2013. 25 p. (BETA publicatie : working papers; Vol. 438).

Research output: Book/ReportReportAcademic

TY - BOOK

T1 - Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics

AU - Udenio, M.

AU - Fransoo, J.C.

AU - Peels, R.

PY - 2013

Y1 - 2013

N2 - 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 the de-stocking hypothesis against an alternative model. Finally, we observe that the empirical data is aligned with experimental observations regarding human behavioral mechanisms concerning target adjustment times.

AB - 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 the de-stocking hypothesis against an alternative model. Finally, we observe that the empirical data is aligned with experimental observations regarding human behavioral mechanisms concerning target adjustment times.

M3 - Report

T3 - BETA publicatie : working papers

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

PB - Technische Universiteit Eindhoven

CY - Eindhoven

ER -

Udenio M, Fransoo JC, Peels R. Destocking, the bullwhip effect, and the credit crisis : empirical modeling of supply chain dynamics. Eindhoven: Technische Universiteit Eindhoven, 2013. 25 p. (BETA publicatie : working papers).