page_title: Reactive destocking
section_title: Effect on the Lehman wave
hierarchical_section_title: Reactive destocking / Effect on the Lehman wave
caption_attribution_description: English: The Lehman Wave superposed on the long term economic cycle
context_page_description: Reactive destocking in supply chain management is a reduction of the inventory when expected demand goes down. When a company is only doing reactive destocking, the desired inventory to sales ratio, remains unchanged. Reactive destocking in general is done by operational managers of the logistical activities, without additional instructions. The inventory can include finished products, raw materials and/or goods in process.
  The term "reactive destocking" is relevant when it is used in connection with active destocking. Active destocking refers to an active decision to reduce the inventory to sales ratio of a company. In general, active destocking is done following an autonomous, often financial decision by a company to improve its efficiency, freeing up cash and reducing its costs. Decisions for active destocking in general are made by financial executives or general managers.
  The terms "reactive de-stocking" and "active de-stocking" were first used in an article about the Lehman wave, published by Dutch researchers in 2009.
context_section_description: Active destocking caused the Lehman wave and reactive destocking deepened it. The strong dip in the manufacturing industry seen at the end of 2008 was caused by cumulative and synchronized active destocking followed by reactive 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. 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 reactive destocking. End markets also responded by going down, but slower and in most markets not so strongly. The drop in end market plus the active and reactive destocking created a giant damped wave, the so-called Lehman wave.
caption: Fig 1: Red curve is the Lehman Wave as a fluctuation around the equilibrium, in this simplified example the black line represents the longer term economic cycle.
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