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The wellness industry faces a double-edged sword: its products have never been more popular, but production hurdles have never been higher.
Globalization has been a good fit for the dietary supplement and functional nutrition industries. Key ingredients are found in all four corners of the globe, and a distributed network of international sourcing and contract manufacturing operations brings them into proximity for production.
At least that’s how things worked until COVID-19 hit and our industry’s small world suddenly felt a lot larger. In response, supplement brands and their co-manufacturing partners are rethinking their entire operations, from the wisdom of maintaining just-in-time supplies to how to conduct business meetings.
And what they’re learning suggests that the industry that emerges from this pandemic may be stronger, and smarter, than before.
Decades from now, people will ask those of us who made it through 2020 when we first realized that the flu-like illness hitting Wuhan, China, wouldn’t necessarily remain there.
For Mark A. LeDoux, chairman and CEO, Natural Alternatives International Inc. (Carlsbad, CA), that moment came when March’s Natural Products Expo West and Engredea trade show was cancelled. “That really highlighted the seriousness of this issue,” he says. “It was a big ‘aha!’ moment for us.”
Eugene Ung’s “aha!” moment came when China “cancelled” Chinese New Year. “There would be a huge domino effect,” recalls the CEO of Best Formulations (Los Angeles, CA). “Our customers operating in China and Asia were ‘ground zero,’ of sorts, in ringing the alarm bell to their U.S. counterparts.”
And speaking of Asia, Shaheen Majeed, president worldwide, Sabinsa (East Windsor, NJ), was actually in India—home of Sami Labs, Sabinsa’s R&D and ingredient manufacturing arm—during the pandemic’s initial spread and has effectively stayed there since. “We didn’t know the extent of the virus’s impact until travel notices were issued in almost every country,” he recalls.
Demand Squeezing Supplies
But while the novel coronavirus has demonstrated an unrivaled ability to upend industries, economies, and our “normal” way of life, it’s actually breathed considerable life into an already-healthy dietary supplement market.
“To say that demand has been robust would be an understatement,” LeDoux says. “Quality companies have more business than they can handle, so they’re triaging customer orders to avoid out-of-stocks while still keeping health-product flow going.”
What’s more, with consumers craving improved immunity, metabolic health, mood, relaxation, and more, supplies of ingredients linked to these benefits also feel the pinch. “We’ve seen everything from elderberry extract to vitamin C impacted in terms of legitimate supply,” LeDoux says. “Even shortages of ingredients as mundane as zinc salts and many of the lettered vitamins have become commonplace.”
Monica Mitchell, vice president, strategic brand sales and marketing, Stauber Performance Ingredients (Fullerton, CA), recounts a similar observation, with demand spiking for several immune and wellness ingredients on their roster—which has lengthened lead times.
That’s the double-edged sword the wellness industry is facing: Never before have its products enjoyed more traction, but never before have the hurdles to their production been higher.
Challenges to obtaining sufficient suppliers were among the pandemic’s first unwelcome consequences, and says Ung, “Customers are certainly more concerned and diligent about supply chains, and are trying to understand where the risks may lie.”
And those risks have many causes, the most acute being the border, port, and transportation shutdowns that COVID-19 wrought.
Majeed saw this firsthand in India, where interstate transportation stopped for several weeks following the nation’s lockdown. “But,” he laments, “much of our turmeric production happens in the state of Karnataka; however, the raw material is largely from Tamil Nadu.” While the government eventually recognized “essential” business and granted permits to cross state lines, logistical friction persists.
LeDoux notes that freight issues “are now creeping into the equation, creating the need for air freight to keep plants open and producing at capacity.”
Steve Holtby, president and CEO, Soft Gel Technologies Inc. (Commerce, CA), agrees. “People don’t realize how much freight is shipped on commercial aircraft,” he says. “We had a case of trying to deliver an international customer’s order and there were no flights to Macedonia—now called North Macedonia.” Ultimately, they flew the order to Frankfurt and delivered it by truck the rest of the way to the customer. “It took a long time and was very expensive,” Holtby says.
Winners and Losers
But amazingly, some contract manufacturing firms—and their customers—are navigating these bottlenecks successfully.
As LeDoux notes, the U.S. Department of Homeland Security’s decision to deem the domestic supplement industry “essential” helped to keep companies afloat. “And with adequate safeguards and systems to guard against COVID-19 outbreaks, quality-focused companies have flourished,” he concludes. “The reality of having a robust cGMP handbook has never been more necessary.”
Adds Ung, “There’s a luck aspect to this, too.” Companies under contract to produce immune products might be firing on all cylinders, for example, while one focused on vision products might find capacity idle, he says.
But “Winners tend to create their own luck,” Ung continues. “Having a diversified customer base is helpful. Having a strong management team is critical to managing through this type of crisis. And being a financially strong company will either help one capitalize on opportunities or weather difficult times.”
Can We Talk?
Industry insiders have identified a number of steps, strategies, and stances that companies across the nutrition supply chain can adopt better to weather the crisis next time.
On the person-to-person side is an emphasis on communication and partnerships. Notes Vincent Tricarico, vice president of contract manufacturing, NutraScience Labs (Farmingdale, NY), “Contract manufacturers who don’t communicate well were exposed dramatically during COVID-19. So one thing we committed to was constant, steady communication. And even when the news wasn’t the best, we were still upfront with customers while simultaneously working with suppliers to solve problems quickly.”
“We’ve seen that having strong relationships at every level of the supply chain is critical to success,” he continues. “If a contract manufacturer has bad relationships with their supply chain, times like this will cripple operations.”
Ung affirms, noting that “crises test relationships, pure and simple. And it’s important for both customers and vendors to understand what relationships mean. No company can prepare for every crisis, but the ones with strong customer relationships will have the fortitude to find solutions and the will to continue when faced with crises.”
Bring It Back Home
Bigger-picture lessons involve the wisdom of just-in-time purchasing, given how companies lacking sufficient on-hand stocks found themselves unable to execute. But while Majeed believes that the era of just-in-time is over for the supplement industry, others are less certain.
“Just-in-time sourcing and manufacturing is very attractive from a cash-flow position,” LeDoux admits, “but COVID-19 highlights the issues it can cause.” He foresees growth in inventory investment in everything from materials to packaging to finished products, adding that “the interesting thing to monitor will be continued sales of these materials a year on.”
And while Tricarico doesn’t consider COVID-19 the death knell for spot-buying, he believes the pandemic has put “an ounce of prevention” on companies’ minds. “The ability to accurately forecast demand and get in front of it will become a highly needed skill,” he says. “And as an operations person by trade, I firmly believe that ordering proactively is something more brands are going to take seriously in the future—and contract manufacturers need to prepare accordingly.”
That hints at diversified sourcing—and, perhaps, bringing some of that sourcing back home. “Anything single-sourced should be reviewed and highlighted as a risk,” LeDoux insists. “Allowing essential materials—whether nutrients or PPE—to be sourced from overseas due to perceived reduced costs is now politically unpalatable.” Repatriating these capabilities will cost companies in the short term, “but any country that thinks it isn’t necessary will suffer dramatically should this event repeat itself, which most assuredly could happen.”
Which is a sobering prediction. But it needn’t incapacitate manufacturers as long as they and their partners get ready now. “There’s a lot of planning companies can do to prepare for similar events,” LeDoux says. “Clearly, the world has changed in our industry, and many would say it’s for the better.”