For the first time since June 2020, global supply chain capacity is now underutilized, indicating a shift to a buyers' market, according to an analysis by supply chain software provider GEP.
That assessment comes as a result of 10 months of subdued demand, inventory de-stocking, and high interest rates, the New Jersey-based company said in its “The GEP Global Supply Chain Volatility Index.” That index fell below zero in April to -0.04, from 0.32 in March, a striking contrast from the picture a year ago when GEP's index stood at 4.61, one of the highest levels of volatility in the 20 years of data.
"After months of companies aggressively destocking, there is now excess capacity in the world's supply chains, providing buyers with greater leverage to extract favorable prices and terms for the second half of 2023 and into 2024. The good news is that companies' demand for components and raw materials, while subdued, is holding steady, indicating that central banks are, at least for now, successfully engineering a measured slowdown," Volker Roelofsen, vice president, supply chain consulting, GEP, said in a release.
According to GEP, the April numbers show that while global demand for raw materials, commodities, and components remains subdued, it is much improved from the trough in December 2022, indicating some stability in the face of consistently high interest rates and a global manufacturing sector under intense pressure.
Lower global input demand is in large part due to companies' drawdown of their inventories and safety stocks. Reports of stockpiling items due to price or supply fears are now running below historic norms, indicating that firms' concerns toward inflation and supplier delivery times have alleviated.
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