Labor issues, choke points at ports, global inflation, U.S.-China relations, and an array of unpredictable elements are a more-than-familiar refrain for most in the nutraceuticals industry.
 
Even over three years after the emergence of COVID-19, brands and contract manufacturers alike are still contending with lasting ripple effects of the disruption.
 
There are plenty of factors to consider in an attempt to make one’s supply chain more resilient. From best practices in sourcing, to evaluating just-in-time versus just-in-case models of manufacturing, and even emerging technologies like A.I. and blockchain, experts discussed with Nutraceuticals World how they’ve weathered the storm. 

Recalibrating Pandemic Disruption

Global supply networks are emerging from the worst of the turbulence, and while recovery hasn’t necessarily been as fast as some hoped, the industry has adapted substantially, according to Wilson Lau, president of Nuherbs.
 
“Companies are doing a much better job coping with unpredictable conditions compared to pre-COVID because they should have a much better tool kit to deal with it,” Lau said. “Best practices and new standard operating procedures should, by now, be adapted to accommodate for increased unpredictability.”
 
Lau emphasized the need to accept that delays somewhere along the line are inevitable, and should be accounted for in long-term planning, especially for limited specialty ingredients. This was the case for him with the ingredients he sourced which had regenerative agriculture certifications.
 
Greater control over supply through vertical integration, diversifying suppliers, sourcing locally, ramping up auditing and quality assurance, and making inventory cuts have been some of the more important ways to maintain continuity amid disruptions, noted Shaheen Majeed, CEO of BGG World.
 
“Most suppliers honed in on what they supply best, where they may have vertical integration set up and/or built into their processes, and cut back on those ingredients they didn’t have control over. On the branded products side, companies either focused on those SKUs that could have a sustainable source of supply and/or quietly reduced their lineup of offerings on the retail side.”
 
Majeed mentioned solutions to a variety of factors affecting the availability and steady supply of raw materials.
 
For outright disruptions in supply, companies have diversified suppliers, increased safety stock levels, and implemented deeper risk management strategies. However, many companies simply over-bought the most reliable materials and focused only on necessities, which stifled innovation.
 
Another facet of the challenge is labor shortage, or general disruptions in the workforce, Majeed said. “Companies have had to be creative in managing their workforce, exploring remote work, flexible scheduling, and employee-support initiatives to maintain operational efficiency. Now, a few years later,, returning to the workplace is another challenge. Manufacturing companies seem to have a smaller pool of candidates to select from that will actually come in and do the manual labor for 8 hours a day, but that has to change.”
 
At this point, many people managing a supply chain have gotten better aat optimizing routes and exploring alternative transportation methods with their logistics partners, said Majeed, but this is costly, and that cost gets passed on to the consumer.
 
On a broad level, “improved communication and collaboration with suppliers, customers, and partners has been critical,” he said. “The most sincere and most profitable way to alleviate an unpredictable environment is to communicate. I can almost guarantee no successful company did so by just issuing purchase orders behind a computer screen.”
 
Not every company can get away with passing inflation costs onto the consumer. Some have had to resort to bulk purchasing and inventory management strategies, said Majeed. “It’s my hope as manufacturing centers increase their production volumes and more laborers return to the job market we could see prices lower and stabilize.”

Just-in-Case vs. Just-in-Time Manufacturing

Some companies have shifted from a just-in-time to a just-in-case model of manufacturing, which observers believe will be a fixture even as supply chains recover.
 
From the vantage point of Cal Bewicke, CEO of ingredient supplier Ethical Naturals Inc. (ENI), leading companies are often planning and ordering their inventory several months in advance. “At ENI we’ve been doing the same and will continue to operate that way.”
 
“Just-in-time has never really been the best way to go,” Bewicke continued. “It allows no time for testing, real quality assurance, or other issues that may come up. These days, companies that are doing well—that are financially well-structured—plan far ahead and invest in sensible amounts of inventory that gives them a cushion against the problems that life and business tend to throw in our path.”
 
However, in situations where production setup and changeover times are brief, just-in-time manufacturing models can help to encourage smaller and more frequent production runs, said Majeed. However, these quicker production cycles warrant the most robust quality control systems, since there are briefer windows to catch defects early in the process. Factors like storage life and waste removal times can also influence which model is more viable.
 
Just-in-case models can result in overstock, which is especially disadvantageous today with the rising cost of raw materials. “Just like how everyone buys different insurances based on their needs, some of us are over- and under-insured. It’s important to understand the risk that you are taking, decide what you are comfortable with, and understand where you want to position yourself,” Lau said.
 
He also noted that position in the supply chain affects things greatly. The more processed an ingredient becomes, the more valuable it becomes, so a 10% shortage is seemingly marginal for a raw material supplier, but is more drastic down the line.

Viral Trends, Online Retail Stretch Specialty Ingredients Thin

Retail has mass-migrated online for dietary supplements since the onset of the pandemic, and appears to be staying there. Online marketing has been more important than in years prior as a result. Viral trends on TikTok and other social media platforms are stretching certain supplies thin.
 
“The pandemic has caused shifts in consumer demand, with increased interest in certain dietary supplements and health-related products. Companies that were agile in adapting their product offerings have fared better in balancing supply with evolving demand,” said Majeed. “Companies are scrambling to find the next new wave to ride.”
 
“The number of claims made, and the unknown quality factor, always has me concerned,” he added. “More and more branded companies are partnering up with influencers, so this will be a normal part of our daily viewing habits.” 

Global Trade Relations

By some estimates 75-80% of the raw material used in nutraceuticals is sourced from China, and Lau said that the biggest challenges Nuherbs is facing today have to do with volatile price hikes of specific Chinese herbs, as well as the ongoing tariffs on herbal products from China.
 
“Some of the price hikes are extreme, like sour jujube date seed,” he said. “There is also the issue of the ongoing tariffs on herbs from China. We fully support AHPA’s (American Herbal Products Association) advocating for the removal of the tariffs that are harmful to us, the industry, and to consumers. Herbal suppliers don’t have huge margins to begin with, so advance notification would be essential.”
 
Without a certain degree of notice, Lau noted that Nuherbs and similar companies won’t be able to transition the material it holds in warehouses from tariffed to non-tariffed, and will unexpectedly be holding materials that are 25% more costly than they would be if shipped after tariff removal.
 
Those who source their product on the open market will bear the brunt of the volatility, Bewicke said. “We have well-developed, long-term relationships with several core manufacturers in China. Apart from some of the logistical and supply variables that are now the new norm, we don’t get a sense of major changes on the horizon. Stable two-way trade is too important to those that run the U.S. and China. If a trade crisis does occur it will certainly affect every kind of business in the U.S., and the supplement industry probably won’t be an exception.”
 
“The dependency on China is moving away from Western companies, but the number of items we depend on from China is mammoth, so it’s not a country we want to or can dismiss,” said Majeed. “China can and will continue to deliver. That being said, there are initiatives by companies to not only source outside of China, but also to manufacture elsewhere. India, Thailand, Philippines, etc. are all options that are being taken seriously.”
 
While some challenges in the U.S.-China trade relationship are important to account for, Lau noted there’s plenty to be apprehensive about in other regions.
 
The conflict between Russia and Ukraine, along with stability issues in Latin America and Africa, will ensure that manufacturers and finished product companies will always need to keep a finger on the pulse of geopolitical challenges. “If we continue to pan around the world, we see geopolitical issues throughout the globe,” Lau said.
 
Another example Majeed noted was the conflict in Sudan, which had gum acacia supplies hanging in the balance for a period.

AI, Blockchain, and Other Logistical Breakthroughs

It remains to be seen how emerging technologies like artificial intelligence and blockchain could benefit supply chain management in the nutraceuticals industry.
 
In addition to transparency, blockchain can mitigate or even eliminate bottlenecking at the sourcing of raw materials, manufacturing, and the final distribution of finished products, according to one publication in Computers & Industrial Engineering. It can serve as an important tool in: promoting transparency and trust in the sustainability of raw materials; accounting for energy consumption in the production and manufacturing to generate savings; increase agility in moving between single or multiple sourcing strategies during disruptions; and reducing other issues pertaining to quality.
 
Once AI is integrated into blockchain technology, several points of potential human error can be removed, the authors noted.  While certain forms of automation and machine learning have been implemented for years in supply chains, today’s improvements in predictive analytics have the potential to remove many more human touchpoints, forecast demand, and introduce new strategies to optimize cost and sustainability.
 
“I think we’re close to seeing more use of blockchain technology in securing documents for both raw materials and finished goods,” said Majeed. “Companies are working on this right now, so it’ll be interesting to see how it rolls out and how consumers take advantage of it.”
 

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(Further Reading: Blockchain Technology Platform Designed to Confirm Supplement Quality in Wake of Counterfeiting)

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At a practical level, it’s hard to predict how applicable AI will be for supply chains at the industry level, said Lau.
 
“While AI is interesting, it needs a massive amount of data to be effective,” he said. “Will it get the data to learn our industry specifically? Or maybe it will translate data from other business sectors for our industry. I think it’s too early to tell whether AI can be helpful to our industry.”

Climate Change

Companies are just beginning to assess and process the mounting costs of climate change, primarily due to extreme weather events and the impact on quality and quantity of natural resources.
 
“Just look at how the cost of insurance in some localities has soared because of extreme weather events. This will also impact our access to the quality and quantity of botanicals that we may seek on an annual basis. So, now more than ever, having good relationships with suppliers, and communicating well, is essential in weathering the literal storms to come,” said Lau.
 
“Some of us are also becoming more proactive about vulnerabilities,” he added. “For example, we added solar to the Nuherbs facility so we will maintain power and still be able to supply our customers if the grid goes down due to extreme weather events, which as we all know have become more common as climate change escalates.”
 
With so many herbs in commerce still cultivated from the wild, pain points in quality and availability will be on a region-by-region, herb-by-herb basis.
 
“Climate change combined with increasing demand has affected supply of a number of botanicals,” Bewicke said. “Examples include bilberry, cranberry, and saw palmetto which have all seen recent short supplies of high-grade material. This not only leads to higher prices but also encourages adulteration in these categories.”
 
“I’m a firm believer that Mother Nature corrects herself, so the more damage we do, she sometimes has to do the unthinkable to correct that,” said Majeed. “Politics aside, there is evidence of changes in crop cycles and season shortening/lengthening that disrupts yields in harvest outputs, which directly impacts how much raw material can be made available.”