Stock depth is the total

stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...

level build up in a

supply chain In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activ ...

, from the firm most upstream to the firm most downstream in the chain. The stock depth of the supply chain is calculated as the sum of the

levels of all firms in a given supply chain.

Relation with Lehman wave

Stock depth is an important element in the behavior of the

Lehman wave The term Lehman Wave refers to an economy-wide fluctuation in production and economic activity, with a wavelength of between 12 and 18 months, driven by a sudden major disruption of the economic system. The Lehman Wave is a damped, wave-like fluctua ...

. If the growth of an end market changes X% in a period t, the supply chain on average changes (1+0.5*Stock depth/t)*X% Therefore Y%= Stock Multiplier * X% = (1+SD/t) * X%. If SD=1 and t=1 the multiplier for the average supply chain is . If the change is more sudden, say, within 6 months, the multiplier is 2, and if the change is very sudden, say within 3 months, the multiplier is as high as 3. In a market with stable growth the effects are small. The further away a company is from the end market, the bigger the reaction. Firms that are far from the end market thus experience higher variations in growth. During a Lehman Wave, firms start

active destocking Active destocking in supply chain management is an active decision to reduce the inventory-to-sales ratio of a company. The inventory can include finished products, raw materials and goods in process. In general, active destocking is done following ...

. If the stock depth of a supply chain is large, the variation in growth becomes larger too, explaining why firms upstream in the supply chain experienced heavy growth variations during the Lehman Wave. During the Lehman Wave, companies upstream were hit more than companies downstream in the supply chain. When the sales of automobiles suddenly dropped in Q4 2008, the suppliers to the automotive producers not only had to absorb the decline itself, but also the corresponding re-active destocking in the whole supply chain that followed the declining end market. This is because the Automotive industry started active destocking.

References

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External links

Lehman Wave shakes the Chemical industry
at lehmanwave.nl Inventory