Flostock News #15 Barbarians at the Gate

Human behavior is stable, according to Flostock’s 15th Law of Demand

Standardized behaviour.

If we define behavior as “the response to an input”, we have found that, contrary to what most people think, most managers do not adapt their behavior to the circumstances.  When someone’s behavior is split in small enough domains, it appears that in each domain the behavior is stable, also in a heavy crisis. The managers have targets, rules and regulations and continue to work according them. Moreover they have habits and routine.  Some behavioral elements do follow the crisis pulse, but the response of each element is the same as outside the crisis.

So if normal purchaser’s behavior is to order the average of last month’s sales, this will be continued also if sales drops in a crisis.  When the crisis hit the coating industry, and Flostock predicted an upward peak, all experts said that this would not take place because supply chain professionals would be “much wiser” and adapt their behavior. Nothing of the kind: the wave took place completely as predicted and everybody bought product in the same way as before, resulting in big overstocking. This continuity in behavior makes modeling and forecasting possible. 

Alternative 7 to the Flostock forecasting methods: Pre-cursors aka Promotions, innovation and product introductions

Product launch.

This seventh alternative to Flostock modeling is used especially in companies that have a lot of new product introductions.  To estimate the success of a new product, companies consider what happened last time this kind of product was introduced, and adjust the estimate for any plausible differences. This can be based on their own product line or on product introductions from other companies. The obvious disadvantage is that success in the past does not guarantee the future, because circumstances differ and –hopefully-  certainly for new product. Also competition is evolving, customer preferences change, technological progress does not stop, etc. So all in all this forecasting method is pretty limited in applicability and usefulness.  

Supply Chain Risk Management considered very important

Risks need to be managed.

In a recent report by Accenture the importance of Supply Chain Risk Management is once again underlined. They found that a majority of leaders wants to make it into one of their priorities and is prepared to invest significantly in it. Most important is end-to-end  supply chain visibility and analytics. Whom better to invite than Flostock, described by McKinsey in SCMR as best practice in the crisis? We build supply chain models that can be used by our customers for visualizing all the potential threats and opportunities in their chain. Our original insights are now included in the teaching at Wharton, MIT and at least 6 European Universities.  

Waves of M&A are coming, but what should be the price?

A wave is coming.

A wave of Mergers & Acquisitions is coming our way according to Marcel de Boer of the Dutch Financiele Dagblad ,  Obe Ejikeme of Bank of America/Merrill Lynch and Pip McCrosty of EY Transaction services (read more here).  American companies have some 1300 billion dollars in the pocket that they want to spend in Europe, since for tax reasons they don’t want to take the money home.  Ejikeme made a list of 61 European companies in technology, automotive, automotive parts, food and beverages and health care that are attractive candidates, including TomTom, Philips, Akzo Nobel, Arcadis, ASML en ASMI from the Netherlands. One of the big uncertainties in the valuation of companies for takeover is their future turnover, especially in volatile times. Flostock is specialized in contributing this volume aspect to the M&A process.



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