It has been three years in the waiting. But buyers have finally found some cost headroom.
The capacity of global supply chain now lies underutilized for the first time since June 2020 – the peak of pandemic lockdowns. This spare capacity is a direct result of companies’ continuing to draw down of their inventories and safety stocks given the subdued demand, and high interest rates.
The GEP Global Supply Chain Volatility Index, a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs, fell below zero in April to -0.04 from 0.32 in March. Compare this to a year ago, when it was at 4.61 – showing the highest levels of volatility in the 20 years of data.
This means with excess capacity in the world’s supply chains, procurement now have greater leverage to extract favourable prices and terms for the second half of 2023 and into 2024.
Interpretating the data:
- When the SCVI > 0, supply chain capacity is being stretched. The further above 0, the more stretched supply chains are.
- When the SCVI < 0, supply chain capacity is being underutilized. The further below 0, the more underutilized supply chains are.
What Does the April Data Tell Us?
- Demand for input materials is still low. But it’s improving, especially in North America. However, demand conditions worsened across Europe in April. Purchasing activity is also slow across Asia.
- The tendency among buyers to stockpile over worries of future price and supply changes is running below typical levels for the first time since February 2020. Companies are, in fact, offloading surplus stock accumulated over the years to cut costs.
- Availability of critical components such as food, metals and chemicals are improving. In fact, shortages of these items are at their lowest since September 2020. Supply for cyclical components such metals has improved, though shortage of semiconductors persists.
- The cost of transporting goods is at normal levels as the strain on freight capacity eases. A year ago, global logistics costs had reached record levels.
- Employment data also confirms that suppliers have adequate staff to process workloads, and tight labor markets are not impacting supply
Learn more and request the full report at www.gep.com/volatility
About the GEP Global Supply Chain Volatility Index
The index is derived from S&P Global’s PMI™ surveys, sent to companies in over 40 countries, totalling around 27,000 companies. These countries account for 89% of global gross domestic product (GDP) (source: World Bank World Development Indicators).