Like a python’s insides, there is not much daylight shining on the inner workings of the VMS supply chain. Hard data is hard to find. Unlike consumer markets where transactions are tracked, tabulated and reported, there is precious little systemwide visibility to the contents of the VMS supply chain. That makes the best intel human and anecdotal in nature, by necessity making this article more op/ed observations than the data-rich analysis I would prefer. However, the VMS supply chain remains the python in the room, so let’s talk about it, the pig inside, and what happens next.
Making a Mess
Three factors created the current mess in the VMS supply chain: First was poor demand forecasting. Accurately predicting consumer demand for specific VMS products has never been a strength across the industry and during the pandemic this was made truly impossible as consumers prioritized immune health en masse and demand soared 10X+ over historical levels for key items. Second was unavailability of materials when needed. The VMS supply chain for ingredients is global, and lockdown-related production disruptions meant that even staples like caps and bottles had unpredictable outages. “Just in time” became “Not remotely on time” and manufacturers all across the industry had to tell their customers that they were “Still waiting on caps”. Third, manufacturing labor markets tightened dramatically as staffing shortages drove up costs and reduced availability. One CEO of a major VMS manufacturer told me “Greg, I’m paying a signing bonus to a new employee to put a scoop in a jug of protein powder.”
Coining a Term: “Hordering”
With consumer demand booming at an unprecedented rate and orders going unfilled, brand owners scrambled for supply. Thus began the “hordering” phase, when brand owners and retailers ordered far more than they needed from multiple manufacturers in the hopes of ending the severe pain of out-of-stocks. Lead times crept up – to 16+ weeks at many manufacturers – and supply remained constrained for finished goods. All at once, “just in time” was out and “just in case” inventory was badly needed by almost every retailer and brand owner in the industry. In perfect hindsight, it is clear that contract manufacturers and their ingredient company suppliers saw a grossly exaggerated demand for the products and materials they were supplying. They also saw customers screaming for the products that they had ordered and had not received. What could go wrong?
Inventory Balancing
Last summer as vaccines and better drugs and treatment methods took the edge off consumer zeal for VMS selfcare, major retailers started announcing the two words most dreaded by brand owners: Inventory balancing. Translation: We are canceling orders and won’t need to buy as much of your products for quite some time. Inventories already at retail had been ordered months and months ago, and many items had been ordered from multiple contract manufacturers “just in case”. Hordering made the ripple effect more like a tidal wave by the time it worked its way down to the scores of contract manufacturers and hundreds of ingredient providers further down the supply chain. The impact on contract manufacturers was felt almost immediately in the late summer. By the time we got to Supply Side West in the fall of 2022, “We’re good until 2023” was what many ingredient providers were hearing from their customers. Translation: Yikes.
Where’s the Pig Now?
Pythons don’t eat for a good long while after digesting a pig, but they do eventually dine again. Consumer demand for VMS products has flattened after a couple of exceptional growth years but is well above the “inventory balancing” orders placed by retailers and brand owners in the second half of last year. The pig of excess inventory is pretty far down the python, somewhere between the contract manufactures and the ingredient suppliers at present. Over the first half of 2023, retailer and brand owner inventory will indeed become “balanced” at new desired levels and finally orders to manufacturers will rise. Executive interviews across the supply chain reveal an expectation of a tough first quarter with gradual return to robust demand starting this spring. Contract manufacturers will see increased orders first, then ingredient suppliers.
Late 2023: Whole Hog
Waves have both a peak and a trough, much like an overfull python’s belly. The current trough is likely to be replaced by a robust peak again later in 2023, as the pendulum swings and inventory austerity programs overshoot, creating whole hog demand for finished goods and the ingredients they contain. In the less inventory-intensive channels of distribution for VMS products like network marketing and practitioner, contract manufacturers are already seeing a rebound in orders. Watch for demand to return in a jagged line later this year, becoming whole hog by year end.
