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The Lehman Wave
Investigating what is happening in the Financial Crisis Robert Peels, April 2010 Logichem

Presentation Clearing the Fog Robert Peels

Observations in Quarter 4, 2008

1

Normal retail sales levels. GDP forecast -/- few % Construction continuing

2007

2008

2009

Sales went down very deep Media, Banks, Cars, Stock markets Consumer confidence Commodity prices

Presentation Clearing the Fog Robert Peels

Hypothesis in December 2008

2

The strong dip in demand for industrial products in Q4 is caused by de-stocking, triggered by bankruptcy Lehman brothers mid September.

Resin

Paint

Parts

OEM

Retail

If a value chain is 250 days long and de-stocking is 12%, a whole month is taken out of the chain, thus causing a 30% dip during three months.

Presentation Clearing the Fog Robert Peels

Checking
• • • • Telephone interviews of 50 value chain partners (Jan 09). Quarterly reports companies. Survey Newspaper under 500 companies (Oct 09). US Census info.

3

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Retail vs Manufacturing

Normal
d elta% vs 2007

10 5 0

(US Census Bureau)

4

-8 oem -15 parts -20 paint -30 resin

End-market

ja n

ja n

ay

m

se

no

m

m

-10 -15 -20 -25 -30 Jan 2008 - July 2009 retail manufacturers

A telephone survey under 50 value chain partners in JanuaryTurnover development of 125 companies depends on their was the first confirmation that cumulative dedistance stocking caused the dip from the end-market
(Newspaper survey)
0 -5 C h a n g e w ith p re -c ris is % -10 -15 -20 -25 -30 -35 -40 -45
Presentation Clearing the Fog Robert Peels

In the USA the dip for manufacturing is much deeper than Philips for retail
without seasonal effect

20%
Now

pre-crisis

Dip

10% ( d e lta v s 2 0 0 6 )/Q 1 0 8 0% Q1'07 -10% -20% -30% -40% -50% Philips sales to retail Supplier sales to Philips Q1'08 Q1'09

1 step 2 step 2 step 4 step

m

ay

-5

v

ar

ar

ju l

ju l

p

5

RE-ACTIVE ACTIVE DE-STOCKING

re sin

RE-ACTIVE

Presentation Clearing the Fog Robert Peels

6

The “Lehman Wave”
Presentation Clearing the Fog Robert Peels

7

Resin

Paint

Parts

OEM

Retail

Presentation Clearing the Fog Robert Peels

Resin

Paint

Parts

OEM

Retail Retail Retail Retail Retail Retail Retail Retail

Resin

Paint

Parts

OEM

8

Resin

Resin Paint Parts OEM Paint Parts OEM Retail

Resin Resin

Paint Parts OEM Retail Resin Paint Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail

Resin Resin

Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Paint Parts OEM Retail Paint Parts OEM Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Paint Parts OEM Retail Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin PartsRetail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM

Resin Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Retail

Retail Retail

Resin

Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Paint Parts OEM Retail Resin Paint Parts OEM Resin Paint Parts OEM Retail

Resin

Retail Retail

Resin

Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Paint Parts OEM Paint Parts OEM Retail

Resin

Retail Retail

Resin

Paint Parts OEM Retail Resin Paint Parts OEM Paint Parts OEM

Resin

Retail Retail

Resin

Paint

Parts

OEM

Presentation Clearing the Fog Robert Peels

Retail Data US Census 110
125 120

Manufacturing Data US Census

9

105 100

115 110 105

95 90

100 95 90

85 80

85 80
ju l-0 8 ok t-0 8 ja n09 ap r09 ju l-0 9 ok t-0 9 ja n08 ap r08

ju l-0 8 ok t- 0 8 ja n09 ap r-0 9 ju l-0 9 ok t- 0 9

ja n-

ap

r-0 8

08

Retail Shipments Retail Inventory Inventory/Shipments
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Manufacturing Shipments Manufacturing Inventory Inventory/Shipments
9

Quantifying via Modeling

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One of the echelons in value chain
.

11

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Dynamic modeling

12

.

Resin

Paint

Parts

OEM

Retail

Output = sales curves

Input= end market curve

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Demand according to echelon
105

13

100 percentage sales vs 2007 95 90 0 15 30 45 60 75 90 105 120 135 150 165 Time (Week) 180 195 210 225 240 255 270 285 300 DSM demand Paint producer demand Coater demand

OEM demand End market demand

Presentation Clearing the Fog Robert Peels

Demand according to echelon
105

14

70 percentage sales vs 2007 35 0 0 15 30 45 60 75 90 105 120 135 150 165 Time (Week) 180 195 210 225 240 255 270 285 300 DSM demand Paint producer demand Coater demand

OEM demand End market demand

Presentation Clearing the Fog Robert Peels

Sales and Stocks
120,00 110,00

15

100,00

90,00

80,00

70,00

60,00 jan-07 jun-07 nov-07 apr-08 sep-08

feb-09

jul-09

dec-09 mei-10 sep-10 feb-11

jul-11

langzaam dalende consumentenvraag End market demand Sales in 4e echelon Sales in 4th echelon
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Stocks in 4e echelon Stocks in 4th echelon Total Stocks Total Stocks

In d e x 100,00%
ja n ap -0

Index

105,00%

110,00%

100,00%

105,00%

110,00%

90,00%
New car registration

95,00%

80,00%

85,00%

90,00%

95,00%

jan ap jul r -0 5 -0 -0 5

Presentation Clearing the Fog Robert Peels
Month

Automobile indexes (2007=100%)

Retail food turnover index (2007=100%)

Month
Motor vehicle turnover index

ok 5 t- 0 jan 5 -0 ap 6 r -0 6 jul -0 ok 6 t- 0 jan 6 -0 ap 7 r -0 7 jul -0 7 ok t- 0 jan 7 -0 ap 8 r -0 8 jul -0 ok 8 t- 0 jan 8 -0 ap 9 r -0 9 jul -0 9

5 r-0 5 ju l-0 5 ok t- 0 5 ja n -0 6 ap r-0 6 j ul -0 6 ok t- 0 6 ja n -0 7 ap r-0 7 j ul -0 7 ok t- 0 7 ja n -0 8 ap r-0 8 j ul -0 8 ok t- 0 8 ja n -0 9 ap r-0 9 j ul -0 9 ok t- 0 9

In d e x

Index

100,00 90,00

120,00 110,00

50,00 40,00

80,00 70,00 60,00

100,00%

102,00%

104,00%

84,00%

86,00%

88,00%

90,00%

92,00%

94,00%

96,00%

98,00%

ja

Household goods retail trade index (2007=100%)

Production Index US (2005=100%)

Month

Month

ja n a p r -0 5 -0 j u l- 5 okt 05 ja n 0 5 a p r -0 6 -0 j u l- 6 okt 06 ja n 0 6 a p r -0 7 -0 j u l- 7 okt 07 ja n 0 7 apr 0 8 -0 j u l- 8 okt 08 ja n 0 8 a p r -0 9 -0 j u l- 9 okt 09 -0 9

16

n05 ap r-0 5 ju l-0 5 ok t- 0 5 ja n06 ap r-0 6 ju l-0 6 ok t- 0 6 ja n07 ap r-0 7 ju l-0 7 ok t- 0 7 ja n08 ap r-0 8 ju l-0 8 ok t- 0 8 ja n09 ap r-0 9 ju l-0 9

Food Paper Glass Automotive Metal Construction

Segment 4, volume/month
(3 March 2010)

17

4000

3500

100% 3000

2500

2000

1500

50%
01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 2006 2007 2008 2009 2010
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Segment 4, seasonality corrected
4000

18

3500

100% 3000

2500

2000

1500

50%
01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 2006
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2007

2008

2009

2010

Segment 4, without seasonality

19

MS gain

2006

2007

2008

2009

2010

2011

Seas Corr
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Model

3mma & seas corr

Segment 4, with seasonality
(2 April 2010)

20

100%

50%
01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 2006 2007 2008 2009 2010 2011

Model seasoned

Actual

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21

Customer info

Historic

Sales Forecasting

S&OP Strategy

Model
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Pipeline

Do’s and Don’ts for companies in a Lehman Wave

22

Don’t: • Overreact • Close factories • Cut innovation • Fire crucial people • Stop marketing communication

Do: • Flexibilize • Communicate over the chain • Communicate internally • Make plans based on scenarios • Cut cost • Continue M&A

Presentation Clearing the Fog Robert Peels

Conclusions

23

Macro A lot is to be learnt and understood about these phenomena at the macroeconomic level; Little research is available; Poor quality or absence of inventory statistics; Governments should collect and publish detailed stock data. Economic planning systems should take stocks into account.

Stock Moves can have a strong influence on world economy. They help
follow downstream branch organizations and statistical market info.

explain why some industries have wider fluctuations in the economic cycle. At echelon 4 de-stocking can be >75% of the dip. For Europe we estimate the Lehman Wave effect to be at least 1,5% of GDP in 2009.

Markets Each company should know its supply chain and end markets. It should Model can help distinguish between real market growth and stock piling. It can give
an early warning if market share changes. The model predicts a second, more shallow dip in 2010. The timing of peaks and dips was predicted very accurate. It can help companies translate end-market growth and stock changes into sales forecasts.

Presentation Clearing the Fog Robert Peels

24

Thank you

Presentation Clearing the Fog Robert Peels