Manufacturing Perspective:

Dietary Supplement Industry – Supply Chain

By: Mike Finamore - CEO

While the Covid economy brought unprecedented growth and awareness to the dietary supplement industry, it also made apparent the challenges with our international supply chain. The photos of 100+ ships parked off the coast of Los Angeles and Long Beach and the scramble for everything from masks to toilet paper are forever etched in our minds. For our industry, when entire cities in China closed their manufacturing facilities, these interruptions cascaded where key ingredients and components became unavailable at any price.

Happily, our industry successfully weathered the Covid storm. While Covid is still with us and probably will always be, it is no longer the market-impacting scourge it once was. The ports are back open and running efficiently and Covid-imposed lockdowns and interruptions are a thing of the past. So why is the international supply chain once again challenging our industry?

As we enter 2024, its apparent that our industry continues to be impacted by events out of our control. The War in Ukraine has slowed the European Union’s economy and the Russian market has been abandoned by many companies. The expected rebound in the Chinese economy never came and the strong headwinds in their domestic market aren’t going away. Recently, the Houthi’s missile attacks on maritime commerce in the Red Sea has caused a dramatic spike in shipping rates and unexpected transit delays. These events continue to impact the lives of billions of people. The true disruption in the world’s economy is not yet fully understood.

We also must not discount the political climate, specifically that between the US and China. With investment restrictions and the establishment of trading blocs and tariffs, the transactional nature of this relationship is more apparent than ever. For our industry, this is critical since China supplies a great majority of ingredients for supplements for which there is no easy replacement available. This dependency is compounded when the Chinese government uses their ability to place market controls on production to cause occasional (and intentional) shortages of materials to increase their market price. Over the years this has happened repeatedly for foundational vitamins and other ingredients, with stated reasons ranging from factory improvements to pollution controls for shutting down key production facilities. Whatever the reason, they have the ability to manipulate the market price of ingredients by creating “shortages” in the market. This can happen at any time without warning.

Besides these macro market conditions, another noticeable issue for our industry is random spot shortages of ingredients that historically were freely available. We can likely attribute this to when successful social media marketing drives interest in certain ingredients which catch the greater market off guard. There has been a multitude of instances where such unanticipated demand has wreaked havoc on otherwise predictable availability, and it’s fair to say this phenomenon will not change.

However, the greatest challenges are the traditional ones – the Brand Owner’s continual search for a differentiating ingredient. In a multi-component dietary supplement, the interrupted supply of that one ingredient negatively impacts the production of the entire product.

In this dynamic market, it’s imperative the Brand Owner works closely with their Contract Development and Manufacturing Organization (CDMO) to develop and engineer items which have a resilient supply chain. This requires CDMO’s strong relationships throughout the supply chain to help identify weak points and workarounds before they become an issue.

For instance, ingredient qualification is a key element of this process. Depending on the ingredient and supplier, this can take anywhere from a week to a couple of months to accomplish. The more unique the ingredient – the more challenging the testing and sourcing – the longer it can take. Obviously, limited sources of supply or specific ingredients in a formula increase chances of disruption, but a CDMO will help mitigate that risk by ensuring that there are multiple sourcing options available should an issue arise.

For example, when considering a botanical or botanical extract, there are numerous things that need to be considered before incorporating it into a formula.

With these questions creating a basic threshold for reviewing an ingredient, its critical for the Brand Owner and CDMO to work closely on both existing and new formulas to ensure there are reliable sources of supply. Traditional practices like safety stock and forecasts might help, but with the unexpected supply chain interruptions this inventory can get quickly depleted- and not be replenishable. This criticality is even greater for unique and/or “hero” ingredients, where the entire Brand suffers due to a single ingredient’s shortage. The partnership created between the Brand Owner and CDMO for all stages of product development, manufacture and replenishment provides the most resilient path for a successful product with market continuity.