Key Insights: GEP Global Volatility Index May 2024

GEP Global Supply Chain Volatility Index for May reveals that global supply chains are operating at near-maximum capacity, indicating a steady outlook

The GEP Global Supply Chain Volatility Index serves is an invaluable tool for procurement, purchasing, and supply chain professionals worldwide. It offers insights into prevailing market conditions, encompassing shortages, transportation costs, inventories, and backlogs. This data is collected through a monthly survey of 27,000 businesses, providing crucial guidance to industry experts navigating the complexities of global supply chains.

The latest data in the May 2024 report suggests an upturn in activity across global supply chains, attributed to more robust demand trends that have been steadily improving throughout 2024 following a period of weakness in 2023.

"Following four years of supply shocks, inflation, stockpiling, and uncertainty, global supply chains are now operating within a Goldilocks zone, characterised by a stable state of full capacity. This development is excellent news for global suppliers and businesses," says Mike Seitz, Vice President at GEP Consulting.

"In China, we are witnessing a gradual uptick in manufacturing activity, prompting Chinese Premier Li Qiang to expedite efforts aimed at eliminating barriers imposed by European markets and fostering increased FDI. This initiative gains significance amidst the looming prospect of tougher U.S. tariffs and trade policies."

Mike Seitz, Vice President at GEP Consulting (Credit: GEP)

Three key insights from GEP Global Supply Chain Volatility Index

  • Asian factories are ramping up input purchases to meet escalating orders, coinciding with Xi's diplomatic efforts in Europe to dismantle trade barriers and stimulate FDI amid escalating U.S. trade tensions.
  • North American manufacturers face challenges in fulfilling orders due to staff shortages and critical material scarcities.
  • Global transportation costs have registered a slight uptick following recent spikes in oil prices.

The GEP Global Supply Chain Volatility Index climbed in April to -0.18, up from -0.32 in March, indicating that global supply chains are operating at nearly full capacity.

The enhanced activity observed across global supply chains is believed to stem from healthier demand patterns, which have consistently improved year-to-date after experiencing significant weakness in the preceding year. The Asian market, in particular, has witnessed robust demand inputs, with procurement managers in countries like South Korea, Vietnam, India, and China reporting heightened purchasing activity in April.

Conversely, the North American market displays signs of tightening capacity, with reports of backlog accumulation among manufacturers, particularly in Mexico. While demand for raw materials, commodities, and components remains subdued, there has been a marginal uptick.

In Europe, demand conditions remain less robust, with the manufacturing sector lagging behind other regions. Nonetheless, the industrial downturn across the continent has considerably eased since late last year.

GEP Global Supply Chain Volatility Index for April

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

DEMAND: Global demand for raw materials, commodities, and components remained close to its long-term average in April, indicating significant improvement compared to late last year. Asia emerged as a key driver of positive growth, with significant manufacturing nations such as China, India, and South Korea reporting expansions.

INVENTORIES: Inventory drawdowns continued into April, albeit slower than in March. Instances of inventory build-ups due to price or supply concerns were at their lowest levels in over four years.

MATERIAL SHORTAGES: Reports of material shortages, including semiconductors, foodstuff, chemicals, and metals, remain historically low.

LABOUR SHORTAGES: After rising for three consecutive months, reports of backlog accumulation due to staff shortages declined in April, aligning closely with historical norms. Notably, North America experienced more pronounced labour shortages compared to other regions.

TRANSPORTATION: Following recent increases in oil prices, global transportation costs experienced their first uptick in April.

Regional variations in the GEP Global Supply Chain Volatility Index

NORTH AMERICA: The index remained largely unchanged at -0.30, indicating spare capacity, although input demand trends showed improvement in April, alongside increased backlog accumulation.

EUROPE: The index declined to -0.55 from -0.62, suggesting a continued easing of the continent's industrial downturn.

U.K.: The index decreased to -0.47 from -0.17, reflecting sharp destocking among U.K. manufacturers instead of ordering from suppliers.

ASIA: The index rose to 0.07 from -0.07, marking the first month of stretched supplier capacity since January.

GEP Global Supply Chain Volatility Index for April

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 underutilization of capacity. 

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

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