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Writer's pictureJeremy Conradie.

GEP Index Indicates High Spare Capacity at Global Suppliers


GEP's Global Supply Chain Volatility Index for November tracks demand conditions, shortages, transportation costs, inventories and backlogs for October


Global suppliers had some of the highest levels of spare capacity seen for more than a year during the month of October. This continues the trend seen in the September report, spoken about here.


That's according to GEP's Global Supply Chain Volatility Index for November, which tracks demand conditions, shortages, transportation costs, inventories and backlogs for the previous month. 


The latest index stood at -0.39, marking little change from the -0.43 posted in September, with no imminent turnaround in Western manufacturing in sight.


Suppliers serving major global markets saw declines in October, with North American supply chains experiencing further significant slack due to falling US factory output.


Purchasing managers at American manufacturers made their deepest cuts to order volumes in nearly 18 months, indicating that factories in the world's largest economy are bracing for lower production.


Suppliers catering to the Asian market also reported spare capacity in October, though less so than Western markets. This reflects sustained expansion in certain Asian industries like those in India. China's factory output and procurement rebounded after three months of contraction, though Japan and South Korea saw declines, a worrying sign for manufacturing in these economies. 


Europe's industrial troubles continued, with significant underutilisation of vendor capacity due to subdued demand. Germany's shrinking automotive sector continues to be a major drag on European factory output.


Moreover, the 'items in short supply' indicator has now been negative for 14 consecutive months, showing oversupply of commodities and intermediate goods relative to current global manufacturing demand.


"We're in a buyers' market. October is the fourth straight month that suppliers worldwide reported spare capacity, with notable contractions in factory demand across North America and Europe, underscoring the challenging outlook for Western manufacturers."


"President-elect Trump inherits US manufacturers with plenty of spare capacity, while in contrast, China's modest rebound and strong expansion in India demonstrate greater resilience in Asia." - Todd Bremer (GEP Vice President)


Key findings were as follows:


Demand: Global procurement remains weak, with North America and Europe seeing the steepest declines. Asia's demand was more resilient but still subdued.


Inventory: Factories worldwide intensified inventory drawdowns in October, with low levels of safety stockpiling as companies tightly manage stocks. Many companies are looking to make their warehouses leaner to preserve cash flow and tightly manage stocks in line with the weak order situation.


Material shortages: The 'items in short supply' indicator, which tracks the availability of critical components and raw materials, remains low, pointing to robust supply levels.


Labour shortages: Manufacturer backlogs due to labour shortages ticked higher and were above the long-term average. Falling factory employment levels in recent months suggests decreased throughput as a result. 


Transportation: Global transportation costs were in line with long-run averages in October.


Regional supply chain volatility


North America: Index at -0.72, versus -0.78 previously. Consistent with a substantial level of spare capacity at North America's suppliers.


Europe: Index at -0.52, from -0.74. An improvement on September, but data indicates a continuation of Europe's industrial recession.


UK: Index fell notably to -0.40, from -0.12. Lowest level in six months, signalling a deterioration in the UK manufacturing sector.


Asia: Index at -0.20, from -0.36. While indicative of spare capacity, the level of slack is much lower than seen in Western markets. India continues to have a strongly positive influence on the region.


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.


A positive value in the GEP Global Supply Chain Volatility Index 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.


Source: Supply Chain Digital

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