GEP supply chain volatility index drops as shortages ease

The GEP Global Supply Chain Volatility Index – which tracks demand conditions, shortages, transportation costs, inventories, and backlogs – fell to 0.97 in January, down from 1.61 in December.

Reflecting a continued improvement of global supply chains, the index reached its lowest point since September 2020.

Businesses reported item shortages were at their lowest point in two years as supply and demand forces continued to rebalance. Global transport costs have also broadly normalized, as pressures on shipping, rail, air, and road freight soften.

January data shows safety stockpiling is back down as well, as concerns over future supply and pricing ease. Labor shortages, meanwhile, were having less of an adverse impact on supplier capacity.

GEP’s index highlighted that January was the seventh straight month of depressed global demand for raw materials and commodities. Demand was lowest in North America, while input demand in Asia was stronger due to the relaxation of Covid policies in China.

Supply chains connected to North America were the least stretched globally, while Europe remained the greatest pinch point for suppliers.

“Though supplier capacity does remain somewhat stretched, we are much closer to normal operating conditions across the world’s supply chains,” said Mike Jette, GEP’s vice president of consulting. “The concern going forward is continuing weakness in demand, but it provides corporate procurement with significant leverage to secure better pricing and favorable terms.”

The GEP index score is derived from S&P Global PMI surveys sent to 27,000 companies in 40+ countries.