January analysis found that companies are taking a wait-and-see approach to tariffs, rather than absorbing the immediate cost of increasing their buffer inventories.
Global supply chains are running at “effectively” their full capacity, with the notable exception of Europe, which remains in a protracted industrial recession, according to a monthly analysis by supply chain software firm GEP.
Clark, New Jersey-based GEP said its “GEP Global Supply Chain Volatility Index” is a leading indicator that tracks demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses. The index posted -0.21 at the start of the year, indicating that global supply chains are effectively at full capacity, signaled when the index hits 0.
"January's rise in manufacturers' procurement across APAC and the U.S. signals steady growth ahead in Q1," John Piatek, GEP's vice president of consulting, said in a release. "Globally, companies are largely taking a wait-and-see approach to tariffs rather than absorbing the immediate cost of increasing buffer inventories. However, many Western firms are accelerating China-plus-one investments to diversify and near-shore manufacturing, assembly, and distribution. European manufacturers are especially vulnerable, as the sector has been contracting for nearly two years with no turnaround in sight. In the U.S., where manufacturing represents just 12% of GDP, the bigger concern for business is the potential revenue losses in China because of trade tensions."
A key finding in the January results was a marked increase in procurement activity across North America. This increase was entirely driven by U.S. manufacturers, as purchasing managers at Mexican and Canadian factories sanctioned procurement cutbacks, indicating a darkened near-term outlook there, the report said.
By contrast, many major producers in Asia bolstered their demand for inputs to meet growing production needs, led by China and India. South Korea, in particular, reported a marked pickup in January.
But Europe's industrial economy continues to struggle, with report data indicating still-significant levels of spare capacity across the continent's supply chains. Factories in Germany, France, Italy, and the U.K. held back on material purchases in January, implying that Europe's manufacturing recession is set to persist a while longer.
Source: https://www.dcvelocity.com/logistics/manufacturing/gep-global-supply-chains-are-running-at-full-capacity
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