Supply chain and forecasts still adjusting in 2023: Natural Products Expo West report

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First, there was the supply chain havoc of the COVID-19 pandemic. Now, inflation is putting a wrench into how nutraceutical and wellness companies can forecast which ingredients they will need and when. At March’s Natural Products Expo West trade show in Anaheim, CA, ingredient suppliers and distributors explained how they are helping their customers through the uncertainty, whether that’s remaining flexible or providing advice based on where they see the market heading.

“Every customer’s been different this last year in terms of how they’ve been handling ordering,” said Douglas Jones, global sales and marketing manager for collagen ingredients supplier BioCell Technology LLC (Irvine, CA). “It’s very difficult to see patterns because everything’s so inconsistent.”

The good news, of course, is that for the most part, the nutraceuticals industry hasn’t seen a huge drop-off in consumer purchasing, meaning product manufacturers are still buying ingredients. “I think there was some hesitation after the big spike in inflation and the big spike in petrol,” Jones said. “We know that consumers did cut back from about May until August, but then in August they came back and were buying more and more. Other than that interruption, I haven’t heard from any customers that they’ve been experiencing anything different at retail.”

He continued, “We’re not going to see the double-digit growth we saw in 2020, but then you can’t reasonably expect you would ever see that again. That was an extraordinary time. But for the category, we’re not seeing a dip either. We’ve seen growth slow down a lot, but it’s not reversing, and [experts are] predicting that we’ll go back to a normal growth pattern next year. Given all the uncertainty that’s in the market, I think that’s fairly reasonable. At least that’s what I’m seeing. And then everything else is on a company-by-company basis.”

Inventory Normalizing?

The good news is that there is more ingredient inventory available than there was during the height of the pandemic when supply chains were fractured. “We’ve gotten to a place where more of the inventory is free-flowing for more of our customers who are not on contracts,” said Kristin Vitek, director of marketing, Prinova (Carol Stream, IL), at Expo West. “There’s more supply readily available.”

Back when inventory was scarce, as an ingredient distributor, Prinova was luckily able to invest in a lot of inventory. “So we were able to fulfill contracts when other suppliers weren’t,” she said. “We took on a lot of inventory to make them happen.”

She continued, “We’re still working through that now. Prices are coming down, and there’s inventory stacked at our customers’ facilities because consumers may be slowing down purchasing…So now, instead of it necessarily being just a logistics shortage, we’re able to deliver the material but our customers may not be ready for it at this point in time.”

Jones similarly said he’s observed that “Some companies built up enormous inventories. Now, they’re going back to more normal inventories, so I think hopefully by the time we get to fall, everybody will be on a more normal footing.”

Said Vitek: “So, you’re starting to see a small slowdown on that side of the supply chain, but unless there’s another major hiccup coming globally from our raw ingredient suppliers, we’re in a really, really good position now.”

Forecasting Is Still a Challenge

Even for an ingredient selling as strong as collagen—which, unlike some ingredients, shows extremely high growth today—it’s still challenging for companies to forecast upcoming demand and ingredient needs due to how unpredictable the global economy and supply chain have become.

“Trying to get forecasts has been a challenge,” said Jones. “And then you get forecasts and a company will say, we’re not going to order in three months—and then the next week you get an order. Don’t get me wrong, I’m always grateful for the orders. Our business is growing. I just think we all wish we had a good crystal ball.”

Companies are still trying to get a handle on where the economy is heading, Vitek agreed. “We’re still in the gray, not quite knowing where the economy is. It’s a very confusing time for a lot of people because brands don’t know how much they really need to keep on hand…Yet, spending is up, so it’s very hard to judge what’s going on.”

As a distributor with a global supply base and even its own large employee-based division located on the ground in China, one of the valuable services Prinova provides its customers is a monthly ingredient report to provide them with as accurate a supply chain picture as possible. “One of the things that Prinova does that is unique in the market is our monthly ingredient market report,” Vitek said. “In that report, we update our customers on the supply chain with whatever we know. All of our product managers in their key categories will give pricing out with 30-, 60-, 90-day projections. So if we know prices may be falling in the future, we will share that with our customer base. It’s up to them if they need to buy now or buy in the future, but that report really has proven to be quite valuable to a lot of our customers.”

It also helps newcomers learn the business. “What’s interesting is that a lot of the buyers coming in are now younger, maybe right out of college or with just a few years of experience under their belt,” she said. “This tool is a way for them to learn the industry and to be able to make better decisions or at least better recommendations to their purchasing team or their sourcing team.”