Spare capacity reported as supply chain pressures ease

The GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs — indicates that global suppliers now have the greatest level of spare capacity since the height of the COVID-19 pandemic three years ago.

The GEP Global Supply Chain Volatility Index, based on data derived from a monthly survey of 27,000 businesses, fell further below zero in May to -0.28, down from -0.04 in April, its lowest level since May 2020.

The difference compared to a year ago, when the index recorded 4.72 — one of the highest levels of stress on global supply chains in two decades of data — is striking.

Global demand for raw materials and components worsened during May, especially across Europe, showing fresh signs of economic weakness. Falling demand for raw materials and improved supply has drastically reduced the need for businesses to stockpile items, with companies continuing to de-stock after building up huge excesses of inventory between 2020 and 2022.

Most telling, for the first time since August 2020, suppliers in Asia saw spare capacity rise. GEP’s Supply Chain Volatility Index for Asia had avoided falling below zero up until May because of the bump in economic activity following China’s reopening. It has since petered out and suppliers have caught up with their backlogs.

In Europe and North America, vendor capacity went underutilized by an even larger degree than in April.

Pramod Gupta, vice president, supply chain consulting, GEP, said: “As a result of the gradual managed slowdown in economies worldwide, companies continue to aggressively draw down inventories as they anticipate negotiating lower prices going forward. We expect this buyers’ market to continue through at least the third quarter.”