The GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses — decreased again in October to -0.41, from -0.35 in September, indicating a seventh successive month of rising spare capacity across the world's supply chains, according to GEP.
Additionally, the extent to which supplier capacity went underutilized was even greater than in September and August. Coupled with October's downturn in demand for raw materials, components and commodities, this shows rising slack in global supply chains.
"While the shrinking of global suppliers' order books is not worsening, there are no signs of improvement," says Jamie Ogilvie-Smals, VP, consulting, GEP. "The notable increase in supplier capacity in Asia, which was driven by China, provides global manufacturers with greater leverage to drive down prices and inventories in 2024."
Key takeaways:
- A key finding was the strongest rise in excess capacity across Asian supply chains since June 2020. Sustained weakness in demand, coupled with falling pressures on factories in Asia, indicates that the global manufacturing recession has further to run.
- Suppliers in Europe continue to report the largest level of spare capacity. In fact, the lower levels in GEP's supply chain index for the continent have only been seen during the global financial crisis between 2008-2009.
- A relative bright spot is North America, where supply chains have excess capacity, but to a much lesser extent than elsewhere as the U.S. economy continues to display its resilience, in stark contrast to Europe.
- Demand for raw materials, components and commodities remains depressed, although the downturn seems to have stabilized. There are still no signs of conditions improving, however, as global purchasing activity fell again in October at a pace similar to what we've seen since around mid-year.
- With demand falling, data shows another month of destocking by global businesses, signaling cashflow preservation efforts.
- Reports of item shortages remain at their lowest since January 2020.
- Shortages of workers are not impacting global manufacturers' capacity to produce, with reports of backlogs due to inadequate labor supply running at historically typical levels.
- Global transportation costs held steady with September's level, although oil prices have declined in recent weeks.
