Navigating the Supply Chain in a Perfect Storm

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As we survey the current supply chain landscape approaching mid-year 2021, the nutrition industry has been able to largely overcome many of the initial raw materials challenges brought on by the COVID-19 pandemic. The ability to improvise strategies and diversify raw materials sourcing through an abundance of different global suppliers, distributors and manufacturers who have ramped up production, has fortunately enabled the industry to sustain steady raw materials supply.

However, on the packaging components side, the industry is still trying to regain its footing as it continues to struggle with shortfalls across the board.

Unforeseen Conditions Causing a Perfect Storm

While the industry has been trying to work through the ongoing effects of the pandemic on packaging supply, due to factors including labor shortages and capacity constraints resulting from the severe uptick in demand for plastics, the nutraceuticals space is now facing unforeseen new problems brought on by recent natural disasters and extreme weather conditions in the U.S.

The impact was most significant in the state of Texas, which is a major hub of polypropylene resin production, a vital component used in a number of applications, including packaging for consumer products. In December 2020, a fire occurred at Total Petrochemicals & Refining USA’s Laporte, TX facility, which is a key manufacturer of polypropylene products. This was then followed by the damaging extreme weather and snowstorms that hit Texas in February 2021, causing power and other utility outages across the region, resulting in additional production disruption.

To put the impact of these incidents in Texas into perspective, the industry was reporting that, as of Feb. 23, a staggering 88 percent of the U.S. polypropylene resin production capacity was offline. With the lingering supply-and-demand impact from the pandemic, layered with these unforeseen severe conditions in Texas, the nutraceuticals manufacturing space is now experiencing what amounts to a “perfect storm” of mounting challenges for packaging supply.

Contractual Force Majeure Usage and Soaring Resin Prices

Among the most crucial industry issues surfacing in the wake of this perfect storm have been the exercising of the “force majeure” clause by polypropylene resin manufacturing companies, triggering massive price hikes for resin.

Force majeure refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations. In the context of resin production, this exercising of force majeure frees participating parties including polypropylene manufacturers, as well as packaging manufacturers—such as bottle and lid producers—free from any liability or obligation in terms of prior supply commitments and pricing agreements.

With resin pricing and supply no longer fixed, this has obviously sent the nutraceutical industry and its contract manufacturers and nutrition brands scrambling to figure out how to quickly address these new stumbling blocks.

Managing Supply Chain Amid New Packaging Challenges

In order to address this multi-layered packaging supply dilemma, the industry has found itself facing, we have been looking to many of the established supply chain management strategies we’ve always had in place, as well as newer lessons learned through the early part of the pandemic. Among the key strategies and areas helping us to navigate our way through for Lief and our clients, include:

• Safety Stock Levels—Increasing safety stock on fast-moving components

• Blanket Purchase Orders—Getting blanket purchase orders and commitments from suppliers. Not just placing orders for the next three months, but going out as far as six to 12 months and placing orders for incremental quantities in batches

• Utilizing International Suppliers—Despite the port congestion issues still occurring, adding international suppliers is helping to offset domestic supply shortages

• Flexibility and Consistent Communication—Ensuring strong communication up and down the supply chain and encouraging client willingness to be flexible with packaging in order to meet production needs and reducing delays (looking at alternatives, such as flexible packaging, foil, bags, pouches and stick bags and recyclables, among other different options)

• Strategic Forecasting—Being much more strategic about forecasting models to better prepare for future supply challenges that arise

Forging Ahead

Though we don’t yet have a firm handle on when this perfect storm of packaging supply shortage issues will subside, we will continue to utilize these tried-and-true supply chain management strategies to help navigate through for the industry and our customers. As difficult as these circumstances have been, they have encouraged positives, such as conversations with our clients about putting additional strategies in place like Lief’s True Stock supply management program to better position our client brands for future industry disruptions.

Additionally, these issues have driven the nutraceutical industry, overall, to become much more aware of where our materials are coming from. This increased understanding can help to reinforce and rebuild our supply chains to develop better natural disaster risk management plans for the future. Going forward, we believe the industry will become much more resilient and the supply chain will ultimately become much stronger if we can pull from the experience of these unprecedented challenges. NIE

Jeohvan Montoya, with more than 13 years of industry specific experience, has held several key positions within nutraceuticals, such as costing specialist, purchasing manager and senior R&D/product development manager. Currently, Montoya is the director of supply chain management at Lief Labs in California where he is responsible for realizing the strategic objectives for the supply chain function through assessment, clear planning and effective execution. He can be reached at jeo@lieforganics.com.

Jennifer Davis is the purchasing lead at Lief Labs, overseeing both the Packaging and Raw Material divisions. Davis specializes in packaging for the nutritional and dietary supplement industry and has nearly eight years of experience. She can be reached at jennifer@lieforganics.com.