COVID-19’s impact on the dietary supplement supply chain: How good are your supplier relationships, your forecasting, and your credit?

September 30, 2020

Panelists at Nutritional Outlook’s September 24 webcast described the effects of volatile market demand on dietary supplement supply chains during the COVID-19 pandemic.

The COVID-19 pandemic threw consumer packaged goods markets into chaos this year. Whether toilet paper or hand sanitizer or even baking flour and yeast, products that were never before challenging to keep in stock suddenly became difficult for stores to keep on shelves. Dietary supplements were no different. Rapid, unexpected demand spikes upended supplement supply chains as retailers, manufacturers, and suppliers struggled to ensure continued supply of products and ingredients.

During a Nutritional Outlook webcast on September 24 titled “COVID-19 and the Dietary Supplement Supply Chain: Surviving Supply Chain Shocks Long-Term,” a panel of industry experts, including suppliers, distributors, and manufacturers, shared insights on the supply chain impacts they’ve experienced so far—and what they expect to see moving forward.

Everything Immune

It’s no surprise that many of the ingredients skyrocketing in demand relate to immune health. “Who would have thought there would be challenges with vitamin C at one time or another?” asked webcast panelist Jim Emme, CEO of natural products manufacturer NOW Health Group (Bloomingdale, IL).

As has been reported throughout the industry this year, sales gains for immune health–benefiting ingredients like vitamin C, elderberry, and zinc have been off the charts. Webcast panelist Joan Driggs, vice president of thought leadership and content for market researcher IRI (Chicago), highlighted items seeing tremendous growth as well: foods with vitamin C (including oranges and orange juice), vitamin D (some early research has linked low vitamin D levels with COVID-19 risk), as well as melatonin (to support better sleep) and mushrooms (for immune health and adaptogenic benefits).

Webcast panelist Wilson Lau, vice president for ingredients supplier Nuherbs (San Leandro, CA), pointed to astragalus as another popular ingredient now. Panelist Shaheen Majeed, president worldwide of ingredients supplier and manufacturer Sabinsa Corp. (Edison, NJ), said his company has seen notable demand for its ashwagandha, turmeric, and probiotic ingredients.

Panelist Jason Sikkenga, general manager of ingredients, U.S. and Canada, for ingredients distributor Prinova (Hanover Park, IL), described the “significant growth globally, a lot of that being driven by U.S. demand,” that his company has seen as one of the largest importers of vitamin C in the U.S. And panelist Jeohvan Montoya, director of supply chain management for contract manufacturer Lief Labs (Valencia, CA), highlighted echinacea, magnesium, and 5-HTP as ingredients his company is seeing high demand for.

Michael McGuffin, president of the American Herbal Products Association (AHPA; Silver Spring, MD), spoke to growing demand for beta-glucans for immune health and their mushroom ingredient sources. McGuffin also said that in addition to immunity products, there has been increased demand for “peripheral products” that support other aspects of health, such as hawthorn for heart health.

It’s not just active ingredients seeing increased demand. “In addition to the active materials, it’s also put tremendous pressure on the ingredients, the excipients, that are used to get those dose forms to market. All the binders, lubricants, fillers, anything that would be used in the manufacturing process to make a dose form, have also seen the same almost overnight doubling in demand,” explained panelist Jerry Whelan, vice president at IMCD U.S. (Lakewood, OH).

More Demand Is Good…and Stressful

High consumer demand is definitely not a bad thing—unless you’re part of the supply chain trying to figure out how to scale up supplies, significantly, at a moment’s notice and at a time when manufacturing and transporting goods became much more difficult.

“I’ve heard a very consistent message that members report that the adjustments that they’ve made are largely related just to volume,” said AHPA’s McGuffin. He recounted at least one story he’d been told of a supplier’s customer “hoarding” ingredients. In that case, he said, the supplier limited the amount of ingredient sold in order to ensure there would be enough material for the supplier’s other customers as well.

Many companies are still relying on their long-time, trusted suppliers and distributors to help them get their materials. But, McGuffin said, he’s also heard that “everybody’s hearing unsolicited offers for new suppliers. Most folks are just ignoring those, but I did receive a note from one member who found a new supply of high-quality essential oils and another who is now doing business with a much more local mushroom grower.”

Said McGuffin: “The theme is: we’re sticking with the people who we already have great relationships with and being open to some new offers if they can meet quality demands.”

Speaking from his own experience, Nuherbs’ Lau said, “When we had a partner who really wanted to develop a global supply chain for raw-material echinacea, because they’re worried about shortages in one country versus another, we developed growing areas in China, North America, and Europe just to cover that particular client, just for them to make sure their needs were taken care of. So, we’re really just trying to collaborate the best we can and do what we can for people.”

Lief Labs’ Montoya praised suppliers for stepping up to the challenges. “We’ve been grateful to have great partners, great contacts, that have been flexible and supportive of the growth that not only us but the entire industry is experiencing. They’ve also been strategic with us, bringing material from the East Coast over to the West Coast to help with the location of the material, and accepting blanket purchase orders that we can pull from as needed to try to help some of the cashflow constraints that I’m sure everyone’s feeling or experiencing.”

Companies have done their utmost to increase production as well. “We got ahead of the supply chain by…increasing inventory levels. We invested more money in inventory,” said IMCD’s Whelan. “We had great suppliers as well who really, on a dime, significantly ramped up production by increasing the number of hours they worked. We saw this a lot in the contract manufacturing world where people would just add more shifts when possible to keep up with increased demand, and I would say over a five-month period, it really helped.”

And, as mentioned, sometimes the solutions meant finding new suppliers. Said Montoya: “Lief Labs had to cast a wider net as far as the suppliers we were working with in order to keep up with the demand, so it was important for us to reevaluate our current quality processes and look for ways to make them more efficient…We also needed to take action very quickly. Our approach was to be proactive rather than reactive. We did need to take additional risks by increasing our safety stock levels, and we were essentially stocking up for the entire year’s forecast within a six-month period. And monthly evaluation of those safety stock levels was instrumental in helping us mitigate some of the risk that our customers were going to experience as far as experiencing shortages or stockouts…And this is something we’re still dealing with today.”

Open communication, being transparent with customers—including when the news was bad and supplies were short—was also key to a better outcome, said panelists. A good relationship between clients and providers became all the more important during crisis.

Lau spoke about the trust that Nuherbs’ customers put in the company. “It’s really having that track record of performance, that people can have faith when you say, ‘Don’t worry about it. It will be here. Let me borrow your current material and give it to a different client. When you need it, it will be here.’”

Obstacles Abound

The supplements supply chain faced many obstacles this year. Said Sabinsa’s Majeed: “For us, as a raw material ingredient supplier, many of the ingredients we depend on for the starting materials come from…farmlands, but other starting materials may have to come from vendors who we’ve had a relationship with for years. But when the pandemic hit and India went into a lockdown, we took hits on vendors not being able to supply as well, and perhaps they had to shut down for a period of time. Some couldn’t keep their employees at job sites. We have larger concerns about interstate transportation as well. For example, while we do manufacturing of our ingredients in Bangalore, India, the materials we need come from all over India. But, fortunately, that was resolved quickly for us through permits and having the right connections to get our materials moving. Needless to say, the collection and storage of materials was an important aspect we worked on every day.”

Shortages and stoppages are by no means over, the panelists emphasized.

“For us on the raw material ingredient side, there are plenty of issues concerning supply chain,” Majeed said. “There may be a shortage of raw materials supply down the road. That may result in price variations or even adulteration to sustain such demands. Logistically, complications continue to be there because of closed roads where there may be concern of COVID breakouts, closed seaports, and fewer airlines to carry cargo. Along with the congestion in transportation, there has been an unexpected and burdening increase in transportation charges. Additionally, shortage of workforce due to lockdown effects or due to frightened employees not attending work can also contribute to the production capacity of the herbal industry in a negative way.”

For manufacturers like NOW Health Group, addressing these issues also took priority. “With things being delayed at ports because of COVID rules and such, it takes longer for a finished-good shipment to get to an international customer…Other interruptions, really our biggest ones, are if we did have someone test positive for COVID from the outside. Then anybody who had been around them, quarantining those people, has had a major impact on our labor force. Fortunately, we have not had anybody catch COVID in our facilities, and thank goodness for that. But that’s the major supply chain impact on the end-users, and it has an impact on vendors delivering for us. It’s as simple as that. How many trucks will we lose in a day?”

COVID-19 is far from the only challenge the supply chain has faced this year. Suppliers like Nuherbs have also dealt with environmental issues that have impacted supply—floods in China, weather in California, fires in Oregon. “I feel that I’ve become a full-time logistics manager,” said Lau. “It’s directing traffic and making sure that things get there on time, don’t get there before while they’re evacuating, leave before the floods start.”

Said AHPA’s McGuffin: “The growers, wild harvesters, farmers, all over the world—so much of the botanical crops that come into the market are from small-scale farmers. They’re not 640 acres, grown fence post to fence post, so they’re impacted not just by the coronavirus issues but also by the recent environmental factors—fires in California, floods in China, as Wilson mentioned. There are additional strategies that have to go into producing supplies when you’re attaining your botanical materials directly from the source, as not only ingredient suppliers and AHPA’s members are doing but also a number of our finished-product manufacturers. [They] have built networks of farmers and wild harvesters, so they’re really having to balance all kinds of issues to first and foremost support the safety of those people that produce these, whether from the coronavirus or from environmental issues, and then plan all of those logistics.”

Looking Forward

Webcast panelists highlighted ongoing concerns.

Credit issues are one of them. “As you can imagine, in many cases, we’ve seen a doubling or more of demand, and that puts people’s credit limits, whether you’re on the buy side or the selling side, it stresses the system because in many cases, for example, customers may not have a credit limit in place that would be commensurate with their new demand. So we find that our credit people are scrambling to work with customers to make sure that we can get them the product, but at the same time not take undue financial risks or exposure,” said IMCD’s Whelan.

And, of course, a primary concern is how to manage the supply chain not just this year or next year, but for many years coming.

“I think what worries me more isn’t what’s happening today, because I think we have a really good handle on what’s going on today at this point,” said Nuherbs’ Lau. “What I worry about is, as demand ramps up and prices ramp up for certain goods that are in demand, that the growers will ramp up their production to meet what they anticipate and think would be a great future need—and at the expense of other herbs that they may have been producing. So, for example, let’s just say they were growing ginger, and now instead of growing ginger they want to grow astragalus because astragalus is hot right now. But what happens is, these things don’t happen overnight. It takes a year, two years, to grow, so by that time out in the future, what may happen is there may be shortages of other herbs over supply of these current hot herbs.”

He continued: “We really want to focus with our partners not only on how to meet today’s needs but also talk about and reassuring them what their needs may be in the future. It may not always be trying to jump on the hot thing today—and a year or two out, when the demand wanes, be stuck over supply or glut situation. So, we’re really talking to our suppliers and growers about that aspect.”

Keeping a close eye on all areas of supply needs is an ongoing effort. Here, distributors can help their customers.

Said Prinova’s Sikkenga, “For us, it’s really about being the mooring line for our customer base and our supplier base. They look to us both as the experts on both sides and both cases.” Sikkenga said Prinova is monitoring closer than ever any developments that could impact the supply chain. “We even looked very heavily at indexes and news with regards to fermentation substrates, really following those closely and how those impact pricing…We actually used some commercial tools where we looked at the top-15 brands selling vitamin C and mapped for the last five months what their lead times looked like on sites like Amazon or whatnot, to help understand what the demand looks like. So, what we’re trying to do is build relationships with our customers because we know what’s going on in the market, and we can secure supply and know what type of demand is driving those supply needs. It’s a constant, volatile marketplace, and you have to be cognizant of what’s going on.”

He added: “I think this has been a good year for a case study in why to use distribution. Distribution has provided a lot more flexibility in a very volatile marketplace where supply, labor, even health of your employees, are at risk, so it’s not a time to go direct right now.” Diversification also helps. “I’m advocating for a hedge model at worst case, where you’re having some of your demand set with a distribution partner and maybe some other with going straight to a manufacturer,” Sikkenga said.

Forecasting demand changes continue to be a challenge. Said Whelan: “For me, the biggest concern, long term, is just getting an accurate feel for what are those trends, how sustainable are they. Is it constant, or is it going to be really lumpy—and then how do we take information back to supply chains?”

IRI’s Driggs said she’s heard the same from other CPG firms, about how companies are forced to make decisions in the face of a good deal of uncertainty. “You’re all making decisions a lot faster and with less information than you did before…Those are all decisions that companies in the past had taken a lot of data to make, a lot of arguing back and forth, to figure out, is this going to work? And now you’re making decisions pretty much on a dime, and you’re finding a lot of success with that. So, I think that waiting for the days of getting it 99% right, testing, and learning—that’s kind of gone out the window.”

The days of just-in-demand purchasing may be gone for now. Said Lau: “People are moving away from a just-in-time kind of purchasing to realizing that that’s not going to work given the new realities that we have to build in—longer lead times, and plan a little bit better.”

“It’s a very unknown time period,” said Sikkenga. “I think we will continue to see this volatility for the next 12 months, and really using a trusted partner who knows and has visibility and can hedge you forward is the right move for you today.”

To hear more on these and other insights from our panelists, watch this free webcast on demand here.