Responding to the Lehman Wave: Sales Forecasting and Supply Management During the Credit Crisis

In this paper we analyze the strong dip in the manufacturing industry seen at the end of 2008 and provide evidence from various sources that it was caused by cumulative de-stocking, triggered by the bankruptcy of Lehman Brothers. This de-stocking created a giant dampened wave, the so-called Lehman wave. We model the Lehman Wave using system dynamics and validate the model using data from a number of business units and market segments of Royal DSM. We show that the model gives a very good prediction of sales development during the credit crisis. We provide insights into how these results can be used to improve sales forecasting and supply chain management during times of severe crises. We also show that the effects of the current financial crisis are far from over and suggest that our methods be used to predict sales during the year 2010.