Weak demand in Europe and North America – In June this year, the Global Supply Chain Volatility Index from GEP and S&P Global recorded reduced demand for commodities and components in Europe and North America. This result marks a significant turning point as global supply shortages have fallen to their lowest level since January 2020.

GEP Global Supply Chain Volatility Index

The GEP Global Supply Chain Volatility Index, a key indicator that tracks demand conditions, bottlenecks, transportation costs, inventories and backlogs on a monthly basis based on a survey of 27,000 companies, showed a value of -0.26 in June (-0.28 in May). This continued the trend of overcapacity among global suppliers for the third month in a row. This index value illustrates the complete reversal of global bottlenecks in supply chains compared to the previous year, when the index stood at 3.53.

In June, demand for raw materials, goods and components deteriorated worldwide, particularly in Europe and North America. According to GEP, this led to a more pessimistic outlook for production, accompanied by rising borrowing costs and an increased risk of spillover effects on the economy as a whole. As a result, overcapacity among suppliers operating in these regions increased rapidly and to a greater extent than in May.

In contrast, demand in Asia is proving more resilient and is essentially in line with its historical average. Some markets, particularly India, one of the fastest-growing major economies in 2023, are showing a degree of stability.

Joel Johnson, Vice President of Supply Chain Consulting at GEP, commented: “Slowing demand for components and raw materials in Western economies, low inventory levels and global supplier overcapacity point to challenging times ahead. The decline in manufacturing demand in recent months is a sign that economic growth in the Western Hemisphere is likely to slow in the second half of 2023. This is an ideal opportunity for companies to renegotiate their procurement with their suppliers for 2024 and 2025.”

Important findings in June 2023:

  • Demand: Global demand for raw materials, commodities and components recorded the sharpest decline since January, mainly due to a deterioration in Europe and North America.
  • Inventories: Safety stocks reported by companies in June were just above the long-term average, indicating that companies are less interested in holding excess inventories.
  • Material shortages: Reports of material shortages fell again in June, reaching their lowest level since January 2020
  • Transportation: Global transportation costs remained below their historical average, which significantly reduced inflationary pressure on companies.

Regional volatility in the supply chains

  • Europe: The index value fell from -0.58 to -0.67 in June due to a noticeable decline in demand for intermediate goods.
  • North America: The index value fell from -0.70 to -0.85 in June, as demand for intermediate goods fell in line with Europe.
  • Great Britain: The index value remained relatively stable at -0.60 in June, compared to -0.66 in May.
  • Asia: In contrast to the global downward trend, Asia recorded an index value of -0.17 in June compared to -0.18 in May, indicating greater resilience.

S&P Global and GEP jointly produce the GEP Global Supply Chain Volatility Index. It is based on S&P Global’s PMI surveys, which are sent to over 27,000 companies in more than 40 countries. The overall score is a weighted sum of six sub-indices. A score above 0 indicates an overstretched supply chain and increasing supply chain volatility. The higher the value above 0, the more capacity is utilized. A value below 0 indicates that the supply chain capacities are not fully utilized, which reduces supply chain volatility.

At BECKPROCON, we help to overcome these challenges and shape a green future by working together to determine how to reduce the carbon footprint and make supply chains more sustainable.