Global supply chains under pressure – the NY Federal Reserve's new index

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Global supply chains are under pressure. So much so that the Federal Reserve Bank of New York introduced a new index specifically for this purpose. This shows the pressure on global supply chains is serious and not a passing phenomenon. CEOs and companies should therefore look at new opportunities, such as artificial intelligence to future-proof global supply chains. 21strategies offers a unique technology based on Third Wave Artificial Intelligence to train and operate optimizing supply chain control strategies. Because one thing seems certain: The pressure and complexity facing global supply chains is here to stay.

The Federal Reserve Bank of New York is attempting to reflect the importance of and pressures on global supply chains with a new index. The Global Supply Chain Pressure Index (GSCPI) is a measurement of the pressure on the global supply chain. It is used to assess the intensity of disruptions in the global supply chain. Its goal is to provide a more comprehensive overview. The new index is thus not used for projection and forecasting. It is intended to better show correlations and current developments and to provide information about them. The results of the new index are published every month and show the developments since 1997.

GSCPI is intended to help assess the significance of supply bottlenecks in relation to economic conditions. Previous measures usually focus on specific dimensions. Here, the GSCPI represents an extension. It integrates more than 27 variables from different measurement categories. These include data from global transportation costs as well as regional production data. In this way, it attempts to provide information on trade, inflation and globalization trends. It incorporates data from seven major economies or entire regions: United States, China, Japan, the Eurozone, South Korea, Taiwan and the United Kingdom.

The result shows that the pandemic increased the pressure on global supply chains. That's not surprising. However, the index is also able to provide more nuanced evidence. For example, it shows that the pressure on global supply chains regained strong importance during 2021. Towards the end of 2021, the newly created index reached its peak so far. Since then, the pressure decreased, although it increased again due to the lockdown in China and the Ukraine conflict. The lockdown measures in China and geopolitical developments have a major influence on the one hand, as they have a major impact on delivery times and transport costs in China and the euro zone. Currently, the pressure on global supply chains is decreasing. However, the GSCPI remains at a high level. According to the FED, an easing of supply chains in the United States has contributed to the more recent decline in pressure on global supply chains. A decline in backlogs in the UK has also had a positive effect on a decline in pressure on supply chains.

21strategies offers a technology based on artificial intelligence that allows to simulate future development of commodity prices. This allows the increasing complexity of global supply chains to be taken into account in real time. As a basis, important variables and their developments are tracked. But the core of 21strategies' technology goes one key step further. The 21strategies technology determines the most advantageous strategic and tactical approach. In this way, a comprehensive strategy for purchasing commodities can be determined. This takes parameters such as inventory capacities and the order situation into account in the analyses. In addition, the development of currencies can also be taken into account and hedged with the most advantageous strategy. With 21strategies' technology, the complexity that global supply chains face can be addressed in a beneficial way.
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References:

Federal Reserve Bank of New York. (2022). Global Supply Chain Pressure Index. https://www.newyorkfed.org/research/gscpi.html [2022/09/19].

Author: Tanja Zimmermann