Key Insights: GEP Global Volatility Index June 2024

GEP has published its latest Global Supply Chain Volatility Index
The GEP Supply Chain Volatility has reached the positive territory for the first time in 14 months, as global manufacturers report stretched capacity

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 — showed a notable increase in May to 0.21, from -0.18 in April.

This was the first time since March 2023 that the index has broken into positive territory, indicating that global vendors are working at capacity and supply chains are at their busiest for more than a year.

A key component of the index increase that month was the further improvement in global manufacturing demand, leading factories to ramp up their purchases of raw materials, commodities and components. In Asia, that purchasing growth was particularly strong, with key exporting countries such as China, India and South Korea.

Suppliers to North America also saw a jump in how busy they were last month — their capacity slightly stretched as a result.

This partly reflected more supportive demand conditions for businesses in the US and Mexico. Europe, which has been a laggard since mid-2022, also saw notable improvement, especially in the UK.

The worldwide picture saw reports of backlogs increasing due to staff shortages at suppliers of critical goods.

Inputs hit their highest in almost 18 months in May. This suggests that capacity expansion is required to meet existing and future demand.

This all paints an optimistic picture for the outlook in H2 2024 for global supply chains.

“The broad-based nature of the breakout we’re seeing in May is a hugely encouraging sign for the global economy going into the second half of 2024,” says Mudit Kamar, Vice President at GEP Consulting.

Mudit Kamar, vice president, GEP Consulting

“If this trend continues, businesses can expect renewed efforts by vendors to raise prices, especially given the recent surge in the cost of many commodities.”

Four key insights from GEP Global Supply Chain Volatility Index:
  • Demand for raw materials, commodities and components accelerates
  • Factory purchasing in Asia rising at fastest rate since December 2021, driven by India, China and South Korea
  • Slack in European market rapidly shrinking, indicating an advancement of the region’s manufacturing recovery
  • Global reports of order backlogs rising due to staff shortages at their highest since late-2022, signalling future price pressures.
GEP Global Supply Chain Volatility Index for May

Key Findings in May's GEP Global Supply Chain Volatility Index 

  • Demand: Demand across the globe for raw materials, commodities and components is now trending in line with its long-term average. This signals that global manufacturing is now moving towards an upswing in the business cycle. At the forefront of the growth is Asia, led by China, India and South Korea
  • Inventories: The inventory cycle has stabilised, with firms neither building up stocks excessively nor aggressively destocking to improve cash flow and cut costs
  • Material shortages: Global item supply remains robust, with reports of shortages at low levels
  • Labour shortages: The frequency at which global suppliers reported a rise in their backlogs due to labour shortages was at its greatest in nearly a year-and-a-half, indicating that capacity expansion is required to sustainably meet current and future demand
  • Transportation: Global transportation costs remain stable, close to historically typical levels.
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Regional variations in the GEP Global Supply Chain Volatility Index

  • North America: The index rose to 0.09 from -0.30, its highest since February. May data showed stronger demand from manufacturers in the US and Mexico, exerting more pressure on North American suppliers
  • Europe: The index rose to -0.13 from -0.55, a 14-month high, signalling a substantial reduction in slack across Europe’s supply chains. This suggests the region’s manufacturing downturn continues to recede
  • UK: The index rose to 0.15 from -0.47. This showed increased capacity pressures at UK suppliers for the first time since January 2023
  • Asia: The index rose to 0.19 from 0.07. Suppliers to Asia are the busiest globally, due to particularly strong demand pressures arising from major markets such as China, India and South Korea.
GEP Global Supply Chain Volatility Index for May

How does the GEP Global Supply Chain Volatility Index function?

The GEP Global Supply Chain Volatility Index is a collaborative effort between S&P Global and GEP. It draws from S&P Global's PMI surveys, which are distributed to 27,000 companies worldwide, a weighted aggregation of six sub-indices derived from PMI data, PMI Comments Trackers and PMI Commodity Price & Supply Indicators provided by S&P Global.

What do the values in the GEP Global Supply Chain Volatility Index signify?

A positive value indicates strained supply chain capacity, leading to increased volatility. The higher the value, the greater the strain on capacity. Conversely, a negative value suggests underutilised supply chain capacity, resulting in reduced volatility. The lower the value, the greater the degree of underutilisation of capacity.

The index is published monthly, with the June survey available for review here.

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