GEP supply chain Index warns of 'gathering storms'

A leading supply chain company warns of "gathering storm clouds", as a report shows that demand for raw materials and components is weakened sharply in Europe and North America

The GEP Global Supply Chain Volatility Index is a leading indicator of procurement and supply chain conditions and is based on a monthly survey of 27,000 businesses.

Joel Johnson, VP Supply Chain Consulting with GEP, said: “Weakening demand for components and raw materials in Western economies, low levels of inventory and excess global supplier capacity suggests that storm clouds are gathering.

"The softening of demand in the manufacturing sector in the last few months is a leading indicator that the broader economy in the Western hemisphere will slow in the second half of 2023.

"It’s a perfect time for companies’ procurement to re-negotiate terms for 2024 and 2025 from suppliers.”

The Index shows demand for components, raw materials and commodities weakened by the greatest amount since January 2023, and says the trend is driven by sharper falls in the North American and European markets.

The survey also shows there is little desire among businesses to hold excess inventory, while the number of organisations reporting a shortage of items also fell, to the lowest level since before the pandemic began, in January 2020.

Labour shortages, meanwhile, are linked to trade backlogs, while the cost of global transportation fell, helping to ease the pressure of inflation on companies. 

Regarding a fall off in raw materials demand, the index reports a third successive month of excessive capacity. Unlike in Europe and North America, demand in Asia, especially India, is holding up better, which the report says "suggests differences in growth between the economies of the east and west".  

Purchasing activity across Asia is broadly in line with its historical tracking average, with pockets of strength in some Eastern markets, led by India -- one of the fastest-growing major economies in 2023.