GEP: Supply chains report stretched capacity as manufacturing activity jumps in May
Supply chains were at their busiest in over a year in May, according to GEP’s most recent Global Supply Chain Volatility Index, which tracks 27,000 businesses globally to measure demand conditions, shortages, transportation costs, inventories, and backlogs.
GEP’s index rose to 0.21 in May from -0.18 in April, breaking into positive territory for the first time in 14 months. An index value above 0 indicates supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized.
A key reason for the index’s increase was a further improvement in global manufacturing demand – leading factories to increase purchases of raw materials, commodities, and components. Global demand for inputs is now trending in line with the long-term average and indicates manufacturing is moving towards an upswing in the business cycle.
Exporting nations in Asia – namely, China, India, and South Korea – were the principal drivers of growth in demand. The Asian index score grew to 0.19 in May, up from 0.07 in April.
Suppliers to North America and Europe also got busier in May, with North America’s index score growing to 0.09 from -0.30 while Europe's score increased to -0.13 from -0.55. Europe’s manufacturing sector – a laggard since mid-2022 – appears to be leaving its recession.
“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,” explained Mudit Kumar, 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.”
Inventories were stable, with firms neither excessively building up stock or destocking to cut costs. Transportation costs also were stable at historically typical levels.
Reports of backlogs due to labor shortages, however, were at their highest level in nearly a year-and-a-half – indicating capacity expansion may be required to meet future demand.
