Does Just In Time Inventory Make Sense For the Global Supply Chain?

In this episode, Wilson Lau and Sam Joshi, talk about “Just in time inventory” and some trends that make “just in time herbal ingredients” harder to secure these last few years. The conversations provides an extensive overview of the stakeholders involved the global herbal supply chain including:

Government / Regulators
Farmers / Wildcrafters
Aggregators
Processors
Traders / Exporters
Logistic Providers
Importers
Manufacturers
Distributors
Brands
Marketers
Retailers /Platforms
Consumers

Wilson and Sam then discuss the trends that specifically related to sourcing ingredients in 2022 and how they have changed in 2022. They cover everything from international logistics to shipping container shortages. They also talk about:

The New Cost of Crops
Hoarding of Ingredients
Costs of Regulations
Labor Shortages
Environmental and Weather Patterns
Crop Destruction

They also explore the growing complexities surrounding getting herbs and botanicals into the country, including the challenges with clearing and qualifying materials.The conversation ends with a look at the importance of data. As a manufacturer or brand, data and analytics is no longer a nice to have, it’s a must have. It’s an investment well worthy of spending the money/time/effort.

Wilson:

Hi, I'm really happy to have my friend Sam Joshi with me. He's formerly with OmniActive. He has a great diverse global background and in-depth knowledge of the natural products industry and how it works from seed to product. He's currently working as an independent consultant to help companies succeed and grow in a variety of areas. Do you want to tell us a little bit about what you have been up to, Sam?

Sam:

Yeah, for sure, Wilson. Good to see you, thanks for having me on. I'm working as an independent business consultant, helping global companies establish themselves through corporate creation and connecting businesses and companies together. I help international companies, mostly out of India, China and Japan, establish themselves in the U.S. I am also working on the SSCI certification program.

The Supplement Safety & Compliance Initiative (SSCI) is an industry-driven initiative led by retailers to provide a harmonized benchmark created to recognize supplement safety, authenticity, and compliance standards around the world for equivalency throughout the entire supply chain.

Wilson:

Yeah, definitely, definitely. I just remembered our first meeting. Definitely, we vibed right away and we're just talking about how many people are in the supply chain, even from just the grower to the exporter or the importer. And we're just talking about how to get the information into SSCI on the raw material side of things.

Sam:

Yeah.

Wilson:

I think what we said was that there's government regulators, the seed providers, and the growers. What else do we have?

Sam:

We had aggregators who bring all the materials together, which goes to the processor who either makes the extracts or the powders and stuff, which sends to a trader. And I think that's kind of where it kicks off, where to go next?

Wilson:

I think then once it gets to the product, its packaging ready to go, we got logistics. Then we got the other country, the importing countries, and regulatory requirements. Then you got the importers, manufacturers, and then your favorite people.

Sam:

The manufacturers and the contract manufacturers really have a lot of burden on their shoulders, because the brands are expecting a lot out of them. The marketers, and then there's distribution and networks, you deal with them all the time.

Wilson:

Yeah, and then we finally got the retailers, consumers, and there's so many more people we can go on for hours about. We've gotten to the nitty gritty, everything from education to R&D to sustainability. Let's talk about since we gave everyone an overview of the global herbal supply chain, what are some trends you're seeing that make just-in-time ingredients sourcing harder to secure these days?

Sam:

It goes beyond. We're all seeing on the front lines right now, it's transport, right? Whether you're trying to get materials from China and Vietnam or India, and you're trying to get them into Europe or the United States or Canada, it's really hard. There's a shortage of vessels. There's a shortage of containers. Rates we've seen go insanely high. I saw a container quote the other day for $32,000 for a container.

Wilson:

From where?

Sam:

That was coming in from China. Yeah. Easily seeing in the $20,000, early high, low twenties is nothing right now. Yeah. It's the cost of the crops. You have people who are hoarding certain products, which are increasing the cost of those crops, before they even get to the processing. The cost of the regulations, there's more and more bars to get over. The cost of the labor. You have labor shortages. In different, you have weather conditions which are either wiping out crops or making it hard to kind of grow things.

Wilson:

Yeah. I think the growing thing and labor is definitely an issue throughout the world. I haven't heard a place that we touch, weather's or China or the U.S. where labor isn't a main issue. It's really shocking that it seems to be a global issue and no longer a localized issue because of COVID.

Sam:

Yeah. You're absolutely right and I don't see that changing for a while to be honest. Just like the transport thing, I don't see that changing for a while. I think labor and all these seasonal weather changes are all there. They're going to be with us.

Wilson:

I think the one thing that we talked about, is just-in-time also makes it really hard now, because of the increased regulatory bar or burden and the testing that we have implemented throughout the industry in the last five to seven years. What are you seeing? How is that impacting this just-in-time model if you have to actually go clear and qualify the material and labs are behind too, right?

Sam:

Labs are behind. Everybody's behind. Even authorizations to bring it to countries. They're all behind. You have regulatory groups like the FDA and EFSA. They're all behind. So it kind of slows down the entire process. Yeah, they use external labs, but in some cases they have to sign off on this stuff. So it just puts everybody in a position to say, "Okay. How do we get around this? What do we do?" It is hard. It's definitely a hard thing.

Wilson:

I think so.

Sam:

Go ahead. Go ahead.

Wilson:

No. I think you're absolutely correct. It's days, extra days and unplanned days that these delays lead to which means that you miss your factor window and other things need to jump on the line. I have even heard some contract manufacturers say first come, first serve. Whoever we can get everything to us or we have everything, so we can start the engines cranking and production. They'll do that first, because everyone is. They can't coordinate everything to get there in a timely fashion. So that sort of puts a burden on manufacturing, whether it's contract or in-house.

Sam:

Yeah. No, you're right. The kitting aspect. There are gaps and a lot of people, you're absolutely right. They're saying that. I've heard that they're like missing two things out of the whole kit. And it's like, they, it can't proceed and I get it. We all get it. You're not going to go change your formulations because they're missing things. Unfortunately you start scurrying and try to fill those gaps any which way you can.

Wilson:

I saw a major brand switch from white caps to orange caps because of a lid issue. So it is beyond ingredients. What do you think companies can do to minimize out of stocks and production delays? Now that we're on this.

Sam:

Yeah. You know, it's all about planning. It's pre-planning your demands. Use the data and analytics that you have. I'm a big advocate of that. I think it does cost money to put those systems in place, but it's an investment well worthy of spending the money and time and effort right now. Use that data. Use that analysis. Try to figure out how you can project and predict what you're going to need. Have those dashboards available to you. I know you know the data too. It's kind of, how can we use this to help us?

Wilson:

I think data's really important. To me having the data is the basic part of it. What you do with the data and how you plan around that data to accommodate real world situations and actualities. The science behind it is the data and analytics. How do we take that and map into an imperfect world?

Sam:

Absolutely. There are a ton of smart people out there who can help do that as best we can. Of course, it's up to you as the person to utilize what comes at you and say, "Hey, you're the expert at the end of the day." You need some figure to say, okay, that makes logical sense.

I'm going to go ahead. I'm going to pre-order three quarters worth of material because you know what, I see the prices are going up. I see transports going up. Capital's pretty cheap. You know what, I think I'll go ahead and do that. It's using your senses and your judgment at that time. We talked about all the things earlier, kind of your labors and your cost of materials going up and the weather issues and things like that. The more information we can provide to them, the more advanced orders we can place and so on and so forth. It's going to help us all out, I think.

Wilson:

Yeah. I think, like you said, you need a seasoned operator to sort of help you translate that analytics and data, such as yourself, to really be able to come up with the real world plan. I've been telling clients that our company, Nuherbs, wants them to start planning ahead. We’re also telling them, we have a warehouse. We rather have the goods in our warehouse and you can store it here with us. And then you can give us a blanket order and you can draw down upon it as you need. If you need a week earlier, not a big deal. You need a week later, not a big deal.

Sam:

Yeah.

Wilson:

But now we at least know the material's qualified and ready to go, and you can sort of reduce the number of uncertainties. Obviously, life is full of surprises. I don't know if you woke up this morning reading the news, I just saw they had an explosion at the port of Dubai last night.

Sam:

I did.

Wilson:

I think really it's like, how do you plan, although it will impact your cash flow analysis? It's an investment, like you said. Capital is cheap right now versus all the other things. Uncertainty is really expensive, especially if you get hit with out-of-stock fees and shelving and all that stuff, when you get to the retail level.

Sam:

Yeah, absolutely. It's risk mitigation. That's one of the things we all learn, especially with natural products. Have those secondary suppliers up and running. For you and your point of, Hey, let us store it for you. That right there is your first, second, third supplier. You're helping people. That's a great move. Safety stocks even in house. Not a bad option. To your point of capital's cheap. Yeah. It's a good investment.

Wilson:

Yeah. I think some facilities weren't built to have too much safety, extra stock because they want to just get material in and out, especially as a manufacturer. As an importer, warehousing is part of our core business, because we're not just trading things through. That's one of the things that

I really like to tell our clients is,we're your first option, second option, third line of option, so we can really just back stop you and really work with you. I think a lot of people forget if you're not from the industry originally that our products are natural products and their seasonality to it. There's no way to sort of say, "Hey, I can guarantee a perfect transition from one year's crop to another crop".

Talking about this, are there any black swans or surprising things that you think people are sort of overlooking in the herbal supply chain that's on your radar? Any tidbits for people or listeners on what to sort of chew on in addition to all the problems we have?

Sam:

The whole COVID-19 that affected the world. We've talked about climate already. The hoarding of certain materials. The cost of freight. There are import alerts, which are coming up for products. It's making sure your vendors and your products aren't on those and being careful with that. I think those are really important things to start looking into and just keep an eye on. The big city escape. It's all about kids leaving the farms. These generations that are growing for us today are a lot of the older generation, especially in countries like India. You have older generations who are running the farms, who are growing those crops who have that knowledge.

It's not being passed along to the next generation because those younger generations have escaped to the cities. It's all about learning new ways of doing things. One of the things you've seen and I have too, is hydroponics. A lot of people are growing in different ways in cities. Suburban growing. I think we need to start looking at these things because I see a potential risk of those other farmers. Eventually that generation will go on. I don't know what you think, but I think that's a big one. We need to keep an eye on.

Wilson:

Yeah. I think the aging workforce is what we're really looking at in India and China in the farmlands and even the U.S. The hard part about these countries, whether it's China, India, Africa, or Latin America, a lot of them are small scale farms. Automation is not very efficient because we don't have large plots of land. Maybe one farmer in the U.S. has enough land in the Midwest to cover hundreds of farmers in these areas that we're talking about. With this flight or really location from rural to cities, I think this demographic change is also sort of hollowing out the labor force there. So you see a lot of policies, I don't know about in India, but in China to sort of try to incentivize people to stay put.

I think there would be a lot of changes, because even if people stay put, the pieces of land are probably too small to make efficient operations. So you get a lot of co-op situations and whatnot in there. I think going back to your point about the import alerts, I think the import alerts are huge. Make sure your products aren't on it and the vendors aren't on it.

The FDA recently used an import alert to address a NDI situation and said other producers of quote-unquote the same ingredient, can't bring that ingredient in because they don't have the proper paperwork and didn't go through the proper channels.I think those import alerts may come to a much higher level of importance, I also think, as the FDA is back in inspection mode.

One thing, Sam, I'm seeing, is now where the rubber meets the road on FSMA on the Food Safety and Modernization Act and the Foreign Supplier Verification program. I think a lot of people were importing ingredients for themselves in a small manner. There is so much paperwork and compliance that comes along with this. I think that's another part of the industry people aren't really aware of. Is your supplier, is your channel of getting these ingredients ready to meet these regulatory hurdles and compliances?

Sam:

Yeah, you're absolutely right. The regulation's been there, but nobody's come to check on you and audits have been unfortunately being done virtually and stuff. I think a lot of things have gotten lax. I would agree with that statement. I think it's going to hit, right, sooner or later. It's going to all come back.

Wilson:

It all does. Well, thank you for your time and hopefully you have a wonderful weekend and thank you for being the first guest on the show and helping get this launched. Appreciate it, Sam.