COVID-19 Supply Chain Impact: The Story So Far

By Mike Montemarano, Associate Editor, Nutraceuticals World | 03.19.20

TraceGains CEO Gary Nowacki shared insights on how the pandemic may affect global supply chains in the nutrition/supplement industry.

COVID-19 may be the most significant public health emergency any living generation has witnessed. With many countries outside of China, where the disease first surfaced, still experiencing exponential growth in new cases, it’s safe to anticipate months of disruption to daily life as we once knew it.
The global economy has taken huge hits as businesses in virtually every sector of the economy experience disruption and hardship.
Meanwhile, there has been a sharp spike in wellness-focused product purchasing as a result of the virus, both inside and outside of the natural products arena. However, it may end up being a challenge for supply to keep up with demand.
Supply Assessment
The natural products industry is particularly dependent on China for raw materials. Upward of 75-80% of all the natural product raw materials used in dietary supplements are sourced from China.
However, now that the disease has spread across the globe, it appears that COVID-19’s country of origin may be just a small facet of the problem in hindsight, as social distancing, telecommuting, and self-isolation becomes mandatory or compulsory for most of the working world. U.S. manufacturing sites could also see reduced work forces or rolling closures depending on how the rapidly evolving situation unfolds.
For nutraceutical companies specializing in wellness-focused products with immune support claims, the virus brought on a substantial uptick in demand, which was countered with the fact that a wide array of natural products, vitamins, and ingredients are produced in high-impact areas of China.
Gary Nowacki, CEO at TraceGains, a cloud-based supply chain logistics company, will be hosting a series of webinars detailing the ongoing impact COVID-19 will have on supply chains, from the point of manufacturing to products reaching the consumer front. He spoke to Nutraceuticals World briefly about the latest updates from the first TraceGains webinar which was held at the end of February and NW reported on previously. Additionally, he hosts a podcast called CtoC, available on many podcast services, as well as here.
“We have more than 1,000 customer sites using our network to source globally, and they’re currently sourcing close to 3,000 ingredients from more than 1,300 Chinese supplier locations and we’ve shared data such as the top 25 most-sourced items from China,” Nowacki said. “Loren Israelsen, president of UNPA (United Natural Products Alliance), has said that many of their supplement manufacturing members source 70% of their ingredients from China, so this is a big deal. As of this date, it does appear China’s efforts to flatten the curve has resulted in some factories getting back online, which should be helpful.”
Since the pandemic has spread well beyond COVID-19’s ground zero, problems that arise are much bigger than China at this point.
“On the flip side, just today, the Big Three auto makers announced the closure of their U.S. factories to reduce spread of the virus among their employees,” Nowacki continued. “Likewise, food and supplements companies could be faced with some sort of rolling closures in their manufacturing facilities, so it’s about more than just keeping the ingredient supply chain up and running.”
Among the top 25 products sourced from China are garlic, potassium, juice concentrate, pepper, vitamin C, stevia, sucralose, calcium, aspartame, pea Protein, vitamin B1, and ginger, and an abundance of botanical ingredients.
Potential Restart?
While it is fortunate that China and South Korea appear to have flattened the statistical curve of new cases coming in per day, many supply chains across the board will likely see some serious lag time before things recoup back to a functional baseline, Nowacki said.
“We’re seeing more anecdotes about Chinese factories coming back online, but it’s unclear if the Chinese government is publishing overall stats. While things appear to be restarting in China, that doesn’t mean a second wave of the virus in China is out of the question as their authorities loosen controls and their population starts to move around the country,” Nowacki said.
On a company-by-company basis, it appears that most providers have several months’ supply of consumer products within their warehouses, however, retail establishments specializing in natural products considered by various authorities to be “non-essential” are increasingly being shut down or have restricted hours of operation.
The Natural Products Association (NPA) called on the federal government to allow health-food stores selling nutritional supplements to remain open during the response to COVID-19. NPA also asked the governors of all 50 states in the U.S. to deem health food stores selling supplements essential businesses, and allow small businesses to request for Economic Injury Disaster Loan assistance.

Furthermore, online wholesalers such as Amazon are struggling with the burgeoning consumer demand for online orders. Amazon recently announced it would only process orders on “essential” food, medical, and toiletry items until April 5 at bare minimum.
Auditing & Verification
Due to the potential for ingredients to become inaccessible amid the public health crisis, companies should remain on the lookout and properly vet each contact along their supply chains to ensure that no bad actors resort to adulteration in order to fulfill demand. This is especially crucial at a time when FDA temporarily postponed all domestic routine surveillance facility inspections. It also postponed foreign facility inspections through at least April.
“Auditors aren’t getting on airplanes, and the number of on-site audits will plummet in the next two to three quarters,” Nowacki said. “Using tools to automatically risk-score suppliers and ingredients and to conduct virtual audits will help folks reduce risk.”
“Serious supply chain disruptions can create a vacuum, and bad actors inevitably step into that vacuum,” Nowacki continued. “We now have an integrated tool called Smart Alerts that shows our customers where fraud and adulteration are starting to occur, specifically how it relates to their supply chains.”

Looking Ahead
What will happen in the hopefully not-too-distant future when the spread of COVID-19 is subdued? What steps will companies take to ensure that their supply chains are capable of withstanding crisis again? Ultimately, what can be learned from this downturn?
According to Nowacki, having source options and adaptability will always prove helpful. “I doubt any manufacturer who broadens options for alternate suppliers is going to regret it—sooner or later, having options will be very handy whether there’s a new epidemic, a new trade war, regional conflict, failed harvests, or other issues,” Nowacki said. “I could see many companies permanently rethinking supply chain and sourcing risk and taking appropriate steps to reduce pain next time around. As economists increasingly forecast both a domestic and global recession, manufacturers of food, supplements, and CPG will almost certainly have a much easier time over the next 12-18 months because people keep eating and using these products, even while they delay a new car, consumer electronics, new clothes, and other discretionary purchases.”
Ultimately, companies that persist through this crisis could also have a chance to find new opportunities in innovation.
“I’ve been involved with technology for the food and CPG industries for more than 25 years, and I’ve seen huge acceleration of innovation and change in just the last five years, whether it’s growth in natural and organic, plant-based protein alternatives, new forms of snacking, etc. Factor COVID-19 into an already rapidly changing consumer, and things very likely will accelerate even more,” Nowacki said.
The companies using TraceGains’ software and network the most common feedback Nowacki has received recently is companies are swamped with new orders, especially in applications like boosting a healthy immune system.