Chemical Supply Chain

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The Lehman Wave

Investigating what is happening in the Financial Crisis

By Robert Peels

LogiChem 2011 will be the event's tenth anniversary and an opportunity for the most senior chemical supply chain & global logistics directors from the European chemicals community to come together once again share experiences, make new contacts and benchmark the latest chemical supply chain initiatives.

Not only will LogiChem 2011 be a chance for the chemical industry to reminisce about the last ten years but an opportunity to shape the next decade. To celebrate a decade of LogiChem, there will be an exciting three day programme filled with networking opportunities in our new location, Antwerp.

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Chemical Supply Chain

  1. 1. 0The Lehman WaveInvestigating what is happening in the Financial CrisisRobert Peels, April 2010LogichemPresentation Clearing the Fog Robert Peels
  2. 2. Observations in Quarter 4, 2008 1 Normal retail sales levels. GDP forecast -/- few % Construction continuing2007 2008 2009 Sales went down very deep Media, Banks, Cars, Stock markets Consumer confidence Commodity prices Presentation Clearing the Fog Robert Peels
  3. 3. Hypothesis in December 2008 2The 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 RetailIf 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
  4. 4. Checking 3• Telephone interviews of 50 value chain partners (Jan 09).• Quarterly reports companies.• Survey Newspaper under 500 companies (Oct 09).• US Census info.Presentation Clearing the Fog Robert Peels
  5. 5. Retail vs Manufacturing (US Census Bureau) Normal 10 4 5 End-market 0 -8 oem d elta% vs 2007 -5 v ju l ju l ja n ja n p ar ar ay ay no se m m m m -15 parts -10 -15 -20 paint -20 -30 resin -25 -30 Jan 2008 - July 2009 retail manufacturersA telephone survey under 50 value chain partners in In the USA the dip for manufacturing is much deeper thanJanuaryTurnover development of 125 companies depends on their was the first confirmation that cumulative de- for retail Philipsstocking caused the dip from the end-market distance without seasonal effect (Newspaper survey) 20% 0 pre-crisis Dip Now -5 10% ( d e lta v s 2 0 0 6 )/Q 1 0 8 -10 0%C h a n g e w ith p re -c ris is % Q107 Q108 Q109 -15 -10% -20 1 step 2 step -20% -25 2 step 4 step -30% -30 -35 -40% -40 -50% -45 Philips sales to retail Supplier sales to Philips Presentation Clearing the Fog Robert Peels
  6. 6. 5 RE-ACTIVE ACTIVE DE-STOCKING re sin RE-ACTIVEPresentation Clearing the Fog Robert Peels
  7. 7. 6 The “Lehman Wave”Presentation Clearing the Fog Robert Peels
  8. 8. 7 Resin Paint Parts OEM RetailPresentation Clearing the Fog Robert Peels
  9. 9. Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail8 Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Resin Paint Parts OEM Paint Parts OEM Retail Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Resin Paint Parts OEM Retail Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Resin Paint Parts OEM Retail Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin PartsRetail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Presentation Clearing the Fog Robert Peels Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Resin Parts Retail Resin Paint Parts Retail Paint OEM Retail Resin Paint OEM Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail Resin Paint Parts OEM Retail
  10. 10. Retail Data US Census Manufacturing Data US Census110 125 9 120105 115100 110 105 95 100 95 90 90 85 85 80 80 8 9 08 8 09 9 08 09 l-0 l-0 t-0 t-0 n- n- r- r- ju ju ok ok ap ap ja ja 8 9 8 9 08 8 09 9 r-0 r-0 t- 0 t- 0 l-0 l-0 n- n- ju ju ap ap ok okja ja Retail Shipments Manufacturing Shipments Retail Inventory Manufacturing Inventory Inventory/Shipments Inventory/Shipments 9 Presentation Clearing the Fog Robert Peels
  11. 11. Quantifying via ModelingPresentation Clearing the Fog Robert Peels
  12. 12. One of the echelons in value chain 11 .Presentation Clearing the Fog Robert Peels
  13. 13. Dynamic modeling 12 . Resin Paint Parts OEM Retail Output = sales curves Input= end market curvePresentation Clearing the Fog Robert Peels
  14. 14. Demand according to echelon 105 13 100percentage sales vs 2007 95 90 0 15 30 45 60 75 90 105 120 135 150 165 180 195 210 225 240 255 270 285 300 Time (Week) DSM demand OEM demand Paint producer demand End market demand Coater demand Presentation Clearing the Fog Robert Peels
  15. 15. Demand according to echelon 105 14 70percentage sales vs 2007 35 0 0 15 30 45 60 75 90 105 120 135 150 165 180 195 210 225 240 255 270 285 300 Time (Week) DSM demand OEM demand Paint producer demand End market demand Coater demand Presentation Clearing the Fog Robert Peels
  16. 16. Sales and Stocks 15120,00110,00100,00 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 End market demand langzaam dalende consumentenvraag Stocks in 4th echelon Stocks in 4e echelon Sales in 4th echelon Sales in 4e echelon Total Stocks Total Stocks Presentation Clearing the Fog Robert Peels
  17. 17. In d e x Index ja n 90,00% 95,00% 100,00% 105,00% 110,00% 80,00% 85,00% 90,00% 95,00% 100,00% 105,00% 110,00% jan -0 -0 5 5 ap ap r -0 r-0 5 5 jul ju -0 l-0 5 ok 5 ok t- 0 t- 0 5 jan 5 ja n -0 -0 6 ap 6 ap r -0 r-0 6 6 j ul jul -0 -0 6 ok 6 ok t- 0 t- 0 6 jan 6 ja n -0 -0 7 ap 7 ap New car registration r-0 r -0 7 7Presentation Clearing the Fog Robert Peels j ul jul -0 -0 7 Month Month ok 7 ok t- 0 t- 0 7 ja n jan 7 -0 -0 8 Automobile indexes (2007=100%) ap ap 8 r-0 8 Retail food turnover index (2007=100%) r -0 8 j ul jul -0 -0 8 ok ok 8 t- 0 8 Motor vehicle turnover index t- 0 ja n jan 8 -0 -0 9 ap ap 9 r-0 r -0 9 9 j ul jul -0 -0 9 9 ok t- 0 9 In d e x Index 40,00 50,00 60,00 70,00 80,00 90,00 100,00 110,00 120,00 ja n ja 84,00% 86,00% 88,00% 90,00% 92,00% 94,00% 96,00% 98,00% 100,00% 102,00% 104,00% n- 05 a p r -0 5 -0 ap j u l- 5 r-0 5 okt 05 ju - l-0 5 ja n 0 5 ok t- 0 5 ja a p r -0 6 -0 n- 06 j u l- 6 ap r-0 6 okt 06 - ju ja n 0 6 l-0 6 ok a p r -0 7 t- 0 -0 6 ja j u l- 7 n- 07 Month okt 07 ap - r-0 ja n 0 7 7 - ju l-0 Month apr 0 8 7 -0 ok t- 0 j u l- 8 7 ja Production Index US (2005=100%) n- okt 08 08 - ap ja n 0 8 r-0 8 a p r -0 9 ju -0 l-0 8 Household goods retail trade index (2007=100%) j u l- 9 ok t- 0 8 ja okt 09 -0 9 n- 09 ap r-0 9 ju l-0 16 Food 9 Metal Glass Paper Automotive Construction
  18. 18. Segment 4, volume/month 17 (3 March 2010)40003500100% 300025002000 50%1500 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 Presentation Clearing the Fog Robert Peels
  19. 19. Segment 4, seasonality corrected 1840003500100%300025002000 50%1500 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 Presentation Clearing the Fog Robert Peels
  20. 20. Segment 4, without seasonality 19MS gain 2006 2007 2008 2009 2010 2011 Seas Corr Model 3mma & seas corr Presentation Clearing the Fog Robert Peels
  21. 21. Segment 4, with seasonality (2 April 2010) 20100%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 Presentation Clearing the Fog Robert Peels
  22. 22. 21Customer info Historic Sales S&OP Forecasting Strategy Model PipelinePresentation Clearing the Fog Robert Peels
  23. 23. Do’s and Don’ts for companies in a Lehman Wave 22Don’t: Do:• Overreact • Flexibilize• Close factories • Communicate over the chain• Cut innovation • Communicate internally• Fire crucial people • Make plans based on scenarios• Stop marketing communication • Cut cost • Continue M&A Presentation Clearing the Fog Robert Peels
  24. 24. Conclusions 23Macro A lot is to be learnt and understood about these phenomena at the macro- economic 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 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 follow downstream branch organizations and statistical market info.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
  25. 25. 24 Thank youPresentation Clearing the Fog Robert Peels

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