Lehman Wave

The Lehman Wave can have strong effects on the sales volume and therefore on the profitability of companies that are located upstream in the supply chain.

[2] The strong dip in the manufacturing industry seen at the end of 2008 was caused by cumulative and synchronized active destocking, triggered by the bankruptcy of Lehman Brothers.

Said bankruptcy created a sudden peak in the Libor interest rate, causing banks to recall credit and companies to start freeing up cash by reducing stocks.

Active and re-active destocking explains why some companies can see a strong dip in sales while their end markets are fairly stable.

In the case of the Lehman Wave that started in September 2008 the single pulse is a synchronized decrease in the target inventory level along the entire supply chain.

Theoretical explanations of the inventory accelerator effect list aspects of the Lehman Wave phenomenon, such as delay in adjusting forecasts, but do not capture the essential layered structure of the supply chain.

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.