Manufacturers increase stockpiles as supply concerns persist

Manufacturers increased precautionary inventory holdings during October despite an easing in overall global supply chain pressures, according to the latest GEP Global Supply Chain Volatility Index. The research identifies stronger stockpiling in North America and Europe as purchasing managers responded to concerns about future materials shortages and price increases, while transportation costs continued to rise.

The index, produced by GEP and S&P Global, draws on purchasing manager survey data covering approximately 27,000 businesses across more than 40 countries. It combines indicators of purchasing demand, supply shortages, transportation costs, precautionary inventory accumulation, and backlogs caused by shortages of materials or labour. October’s findings show that manufacturers were increasing their inventories even as some of the immediate constraints affecting supply began to ease.

North America recorded the strongest increase in precautionary purchasing, with its safety stockpiling indicator more than doubling from September. The measure reached its highest level in five months, reflecting attempts by manufacturers to protect production against possible future shortages and higher input costs. European companies also increased their inventory buffers, reversing some of the reductions reported during September.

The change in purchasing behaviour was not uniform across regions. Asia’s supply chain volatility reading increased from 1.49 to 1.67, reaching a four-month high. Europe’s index rose from 0.66 to 0.78, while North America’s declined from 1.13 to 1.03. The UK reading fell more sharply, from 0.59 to 0.39, indicating a further easing of pressure on manufacturing supply chains.

These readings measure pressure on supply chain capacity, not the percentage change in physical inventories, freight volumes, or manufacturing production. A positive index value indicates that capacity is being stretched, with higher positive readings representing greater pressure. Negative values indicate underutilised capacity. The direction of the index can therefore differ from changes in individual measures such as stockpiling or the cost of transport.

North America’s October results illustrate that distinction. The region’s overall reading declined by 0.10 points even as manufacturers increased precautionary inventories and reported backlogs associated with materials shortages. The composite indicator reflects several operating conditions, allowing improvements in some components to offset deterioration in others.

Purchasing activity remained comparatively strong at the global level. Manufacturers continued to increase their acquisition of production inputs, with the United States, China, and Germany among the principal contributors. Some of that activity reflected continuing demand for materials used in current production, while precautionary buying added orders intended to protect against potential future constraints.

Inventory buffers serve a different purpose from materials purchased for immediate consumption. A manufacturer may hold additional components or raw materials to reduce the likelihood of production interruption when supplier deliveries are delayed or actual demand exceeds the forecast. Determining the appropriate quantity involves expected consumption, supplier lead times, delivery variability, and the consequences of unavailable materials.

When the probability or potential cost of disruption increases, procurement teams may raise their target stock levels. The resulting orders can temporarily increase demand faced by suppliers even where the manufacturer’s current production rate has not changed. If several customers increase their inventories simultaneously, suppliers may experience stronger purchasing activity without an equivalent rise in the final consumption of their products.

The October research does not quantify the proportion of purchasing attributable solely to precautionary stockpiling. It does, however, identify a sharp increase in reported inventory building because of concerns about availability and prices. That distinction limits the extent to which stronger purchasing can be interpreted as evidence of sustained growth in underlying manufacturing demand.

Additional inventory also changes working capital requirements. Materials acquired earlier than necessary must be financed, stored, handled, and recorded before they enter production. Higher holdings can provide protection against supply interruptions, but they occupy warehouse capacity and can become less useful if customer orders, product designs, or production requirements change.

John Piatek, vice president of consulting at GEP, identified inflation and the possibility of renewed disruption as concerns influencing manufacturers’ purchasing decisions. He also warned that buying could weaken after businesses accumulated sufficient stocks, potentially placing pressure on manufacturing activity during 2027. That is a risk identified in the research rather than a confirmed forecast of declining production.

Materials shortages remained above their long-term average for the eighth consecutive month, although they were less pronounced than at any point since March. Oil, electronic and electrical components, and metals continued to be reported as difficult to obtain. The findings indicate that some supply constraints persisted even as the overall frequency of reported shortages declined.

Shortages of individual components can restrict production when an assembly requires several materials to be available together. A manufacturer may have sufficient stock of most inputs but remain unable to complete an order if one approved component is missing. Alternative suppliers or replacement materials may not be immediately available because of technical specifications, qualification requirements, or differences in delivery lead times.

Stockpiling can reduce exposure to these constraints where sufficient storage and working capital are available. Its effectiveness depends on selecting the materials most likely to disrupt production, rather than increasing every inventory category indiscriminately. The survey results do not identify the specific stockholding strategies used by individual businesses or establish whether the additional inventories were concentrated in critical components.

Transportation costs added another source of pressure during October. GEP’s transport cost indicator increased for the second consecutive month, reaching a four-month high as global oil prices rose. Higher freight charges can increase the delivered cost of production inputs, even where suppliers have not changed their underlying selling prices.

The effect depends on shipment characteristics and contractual arrangements. Transport costs represent a different share of total procurement expenditure for bulk materials, containerised industrial components, and specialised equipment. Businesses using longer international freight routes may also face additional handling or inland transport expenses, while those operating under longer-term contracts can experience different price adjustments from companies purchasing transport on the spot market.

Europe’s higher index reading reflected increased purchasing and inventory accumulation, with Germany playing a significant role in the regional movement. The increase from 0.66 to 0.78 indicates that supply chain capacity came under greater pressure during October, although it does not imply that all European manufacturing industries experienced the same conditions.

UK manufacturers moved in the opposite direction. The index declined to a three-month low of 0.39, with weaker purchasing activity and continued reductions in buffer inventories. The contrast shows that the European increase in precautionary buying was not repeated throughout the region, even as businesses faced some common international supply and transport conditions.

Asia recorded the highest regional pressure reading at 1.67, supported by strong demand for manufacturing inputs in China and higher transportation costs. The regional result indicates greater utilisation of supply chain capacity, but it does not provide a single measure of shortages or manufacturing performance across every Asian economy.

Labour availability offered some relief. Reports of manufacturers accumulating backlogs because of staffing shortages fell to their lowest level since February 2025. This improvement did not eliminate shortages of materials or the cost pressures associated with transport, but it reduced one of the constraints affecting production capacity during earlier periods.

The index methodology combines six underlying indicators, including quantities purchased, reported shortages, transport price pressure, precautionary stockpiling, and backlogs associated with labour and materials. The resulting measurements describe changes in supply chain conditions rather than prescribing an inventory policy for individual manufacturers. Businesses must still assess their own demand, supplier reliability, and cost exposure when deciding how much stock to hold.

October’s results establish a divergence between improving immediate supply conditions and greater concern about future disruption. Manufacturers continued rebuilding inventory buffers even as reported materials shortages became less severe. GEP’s next index release, scheduled for 10 December 2026, will provide further evidence of whether precautionary purchasing continues or begins to ease after the additional inventories have been accumulated.