The GEP Global Supply Chain Volatility Index for May 2025 registered -0.46, a decrease from April's -0.39, indicating growing spare capacity across global supply chains. This shift is primarily attributed to a significant slowdown in Asian manufacturing, which has reached a 17-month low, largely influenced by tariff impacts on China-based suppliers.
Why it matters: The increasing slack in supply chains, especially the pronounced downturn in Asian manufacturing centered on China, suggests that ongoing trade tensions and tariffs are tangibly reshaping global trade dynamics. This environment presents both challenges and opportunities for businesses, necessitating a re-evaluation of procurement strategies, inventory management, and supplier diversification to navigate potential economic decoupling and shifting demand patterns.
The big picture: Data from the GEP index, which synthesizes inputs from 27,000 businesses globally, reveals several key trends impacting consulting clients:
- Global demand for raw materials and components remained weak in May, hitting its lowest point in 2025 so far.
- Asian procurement activity, particularly in China, experienced its most significant contraction in nearly a year and a half.
- U.S. manufacturers, while also facing underutilization, are actively increasing inventories as a hedge against future price volatility or supply disruptions. This contrasts with European firms, which are maintaining leaner inventory levels.
- Asia: The regional index dropped to -0.40 from -0.32, marking its most underutilized state since December 2023. Chinese factories significantly pulled back on purchasing.
- North America: The index saw a slight improvement to -0.24 from -0.34, mainly due to U.S. companies building up stocks. However, manufacturing conditions in Mexico and Canada continue to drag on regional performance.
- Europe: The industrial sector showed tentative signs of recovery, with its index relatively stable at -0.30 (down slightly from -0.29). Fiscal stimulus, especially in Germany, is providing some support, and the index is well above its two-year average.
- U.K.: Supply chains remained severely underutilized, with an index of -0.97 (up from -1.12 but still very low), reflecting aggressive retrenchment in the manufacturing sector.
By the numbers:
- Global Index (May):
-0.46 (down from -0.39 in April), indicating increased spare capacity. - Asian Index (May):
-0.40 (down from -0.32), region's supply chains most underutilized since Dec 2023. - U.S. Inventory Strategy:
North American safety stockpiling above its long-term average for the second consecutive month. - European Inventory Strategy:
Manufacturers continue to favor lean warehouses. - Material Availability:
Global item shortages indicator remains below its long-term average, signaling robust supply levels.
- The progress and outcomes of U.S.-China trade negotiations and their direct impact on tariff policies and market sentiment.
- How companies adjust their global sourcing and inventory strategies in response to sustained trade uncertainties and the trend towards economic decoupling.
- The sustainability of Europe's nascent industrial recovery, particularly in light of ongoing global demand weakness.
- Potential shifts in labor market dynamics if subdued demand and underutilized capacity persist across key manufacturing regions.
The GEP Global Supply Chain Volatility Index for May 2025 may be viewed here.
SOURCE: GEP
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