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Jan Fransoo: 'Economy recovers quickly'.
Recently there was an outstanding article in Dutch newspaper NRC Handelsblad from Prof. Jan Fransoo, Lecturer of Technical Business Economics at Eindhoven, titled "The economy is recovering quickly now". In the article he criticised economic analysts who were only looking at monetary matters and CEO's who make employees redundant and close factories without knowledge of the effects of stock variation on market demand.
Fransoo explains why companies are reducing there volumes after the collapse of Lehman Brothers and the far reaching consequences on the end-market demand. ‘Drop in demand is not based upon a real drop in demand in the market, but on the effect of all customers deciding to reduce their stock levels at the same time. Stock levels are reduced by ordering less than is being consumed. The effects of this on the logistic chains are enormous, but are systematically underestimated.'
'For example, take gloss paint that is being used on window frames of new building projects: One producer of base chemicals delivers to the manufacturer of the binder, the binder manufacturer delivers to the paint manufacturer, the paint manufacturer delivers to the manufacturer of the window frames who delivers to the builders. If everyone in this chain decides to reduce demand to 10% of their stock, then within a short period the manufacturers of the base chemicals will see demand drop by 50 to 60%.'
'The good news is that in the end-market in most cases the actual drop in demand is relatively limited. And if the actual drop in demand is limited it can't take long before the demand on the complete chain grows again. Our studies at the Technical University in Eindhoven shows that in many sectors this recovery will take place early in the second half of 2009, and that this could happen at great speed. In some short chains this recovery is already happening, in longer chains it will take longer.' Click here to read the complete article (Dutch) on the website of the NRC Handelsblad.
May 2009