Business See Safety Stock Building Rise
January 19, 2023
GEP Global Supply Chain Volatility Index — a leading indicator tracking
demand conditions, shortages, transportation costs, inventories and backlogs
— shows declining demand for raw materials, commodities, and other
components needed to provide finished goods and services in December,
reflecting the growing risk of a recessionary period ahead.
Additionally, more businesses are safety stockpiling inventories,
particularly in Europe and North America, due to a resurgence in COVID-19
infections in China and increased concerns about future supply and pricing,
partly reversing destocking efforts seen in the prior six months.
As a result of greater safety stockpiling and worsening of labor shortages,
the GEP Global Supply Chain Volatility Index rose — up from 1.15 in November
to 1.61 in December — halting the improvements in the world’s supply chains,
which began in the summer of 2022.
Commenting on the latest results, John Piatek, GEP’s vice president of
consulting, said: “We are shifting from a sellers’ to a buyers’ market, and
companies should be pushing back hard on all price increases from their
suppliers, which will continue to drive down inflation. Falling demand
signals the increasing likelihood of a global recession in the first half of
The key findings from December’s report:
Demand for components, raw materials, commodities and any other items
companies need to provide their goods and services declined further in
December, especially in North America.
INVENTORIES: Global business reports of safety stockpiling are up since
November, which is a key factor behind December’s increase in GEP’s Global
Supply Chain Volatility Index.
LABOR SHORTAGES: Companies report an uptick in labor shortages, causing
supplier capacity to be stretched.
MATERIAL SHORTAGES: Global supply shortages are at their lowest level since
September 2020 as suppliers continue to adjust to market conditions. Easing
demand has reduced competition for items.
TRANSPORTATION: Transportation costs are at their lowest in over two years,
highlighting weaker pressures on shipping, train, air and road freight.
REGIONAL SUPPLY CHAIN VOLATILITY: Supply chains feeding into Europe remain
the most stretched, compared to Asia and North America, in December. A value
above 0 indicates that supply chain capacity is being stretched and supply
chain volatility is increasing. The further above 0, the greater the extent
to which capacity is being stretched.