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Raw Material Sourcing in a Global Supply Chain

Article

by Mark LeDoux -

Over the past 30 years, much has changed in the way products are sourced, manufactured, tested and distributed. Many are unaware of the fact that post World War II, the U.S. government undertook policies that sought to relocate “dirty industries” to foreign lands, presumably with the best of intentions to help restore the economies of former enemies who had been decimated by years of conflict and disruption. Most amino acids and other fine chemicals that were produced in North America for inclusion in dietary supplements are no longer produced in the United States. In addition to the presumably altruistic one of post war America, the publication of game-changers like “Silent Spring,” the formation of EPA and the passage of various pieces of environmental legislation protecting the air and water resources, the appetite to produce these products domestically waned because of the potential environmental hazards.

The oil-embargo suffered by the United States in the last century demonstrated potential weaknesses in the industrial landscape of America, and called into question the wisdom of heavy industry requiring substantial energy and natural resources. The 1980s saw a further reconfiguration of the industrial landscape of America with business schools heaping praise on the just-in-time inventory management systems espoused by the Japanese titans of industry. Adding further depth of obstruction to American production were the layers of permitting processes required before production facilities could even be built.

Also in the same time, the final decade of the last century witnessed the rise of China, which had emerged from its largely four-decade descent into the totalitarian centralized planning protectionism of Maoism, and entered the global marketplace as the prominent low-cost producer of just about everything. This development happened to coincide with the settlement of one of the largest price-fixing cases in the history of the health and nutrition industry, involving various multi-national companies that manipulated market conditions to artificially set prices at “agreed upon” levels. Because of this sordid event, many of the companies affiliated with that activity are no longer key players in the industry, or have been merged or sold off to other parties.

Therefore, in just about the span of a generation, the world has completely changed for those of us in the dietary supplement space. No longer are commercial quantities of vitamins produced in Nutley, New Jersey, by arguably the patron of the modern industry, Hoffmann La Roche. In fact, Roche is no longer in the business, having sold its nutrition division several years ago to a Dutch corporation known as DSM (Dutch State Mining). DSM has remained an industry leader in research and product development and production, but has recognized that global sourcing requires global production, thus deploying innovative ways to reduce costs while protecting the environment using the most advanced technologies. Now DSM has plants all over the world and remains a key supplier to this industry.

Painted on this canvas of the landscape of this ever-changing industry, we have the colorful arrival of the passage of the Dietary Supplement Health and Education Act of 1994 (DSHEA), Nutritional Labeling Education Act (NLEA), Food Safety Modernization Act (FSMA), and a host of other associated laws and regulations. The industry had been laboring under interesting and tortured rules of engagement after the passage of the Proxmire Act, so the signing of DSHEA into law marked a key turning point for industry. This one law, and the subsequent publication of the GMPs (good manufacturing practices) called for by this legislation, has forever changed the industry in meaningful ways. No longer can producers of finished goods rely upon the “word” or certificates of analysis (CoAs) of authenticity to discharge their obligations to verify identity, potency and purity of the component or finished product. Most of the violations of DSHEA as enforced by FDA point to this area of the law that producers have misapplied to their peril. Furthermore, with the appointment of key regulators to oversee enforcement of the provisions of DSHEA, namely Daniel Fabricant, Ph.D., former director of FDA’s Division of Dietary Supplement Programs (DDSP) and Corey Hilmas, M.D., Ph.D., former Chief of the Dietary Supplement Regulation Implementation Branch, DDSP, industry took notice of its deficiencies in adhering to the law, and realized the old ways of doing things were no longer applicable.

Hence, the landscape we have now is clear in terms of how a company should go about sourcing raw materials from this global supply chain. It reflects an adage by former President Reagan, “Trust, but verify.”

Here are just some of the questions that need to be asked of current or potential suppliers, and those areas that also require further testing either internally or by qualified third-party facilities, to qualify a material for use in dietary supplements in the United States:

  • What is the country of origin?
  • What is the manufacturing process, with flow chart, list of chemicals deployed, etc.?
  • What are the positive release parameters of the product versus the purchaser’s standard? In other words, in a world where the presence of a heavy metal, such as lead, would require a warning above a certain amount, what is the concentration of heavy metals in the raw material, and how is that level ascertained?
  • Are there any environmental contaminants present?
  • Are there any allergens present in the raw material?
  • What is the shelf life and required storage conditions?
  • What is the bio-burden, e.g., yeast, mold, etc.?
  • Is the material kosher or halal or both? If so, provide written verification from the responsible agency.
  • Is the manufacturing facility appropriately and currently licensed?
  • Has the manufacturing facility ever experienced a recall or product failure? If so, details and corrective action plan copies would be mandatory.
  • Do you provide product liability insurance naming the entity as additional insured? What perils are insured, and at what levels?
  • What is the ownership structure of the company?
  • Will the company provide audited or reviewed financial statements?
  • Will you provide an organizational chart showing contact data for the essential personnel?
  • Can we initiate a site visit for a vendor qualification audit?

These are 15 separate questions of significance, and none of them include the query that is most often the show-stopper, namely, “What is the price?”

In July 2017, a former industry executive in manufacturing was sent to federal prison for 18 months for knowingly authorizing the production of dietary supplements known to contain a chemical analog or derivative of methamphetamines. In some cases, executives feign ignorance of the presence of these active pharmaceutical ingredients in finished products, but ignorance of the law is not a satisfactory defense.

We all know there is enormous pressure on companies to maintain profitability, but there are correct ways of doing this, and succumbing to the lowest price bidder as the primary decision point is often followed by significant regret when something goes wrong. Recalls in our industry for products contaminated with Salmonella or other pathogens are expensive and damaging to brand equity and industry credibility. Product seizures for misbranding or placing harmful synthetic chemicals that mimic sexual enhancement agents or stimulate rapid weight loss will continue until self-discipline and the recognition that doing the right thing is the better way.

Until then, caveat emptor—let the buyer beware. If a producer in the dietary supplement space fails to follow the basics of GMP requirements when qualifying and sourcing raw materials, it’s often the first step in what can become a costly, embarrassing and negative experience.

Mark A. LeDoux is founder, chairman and CEO of Natural Alternatives International Inc., an organization with world-renowned facilities in the United States and Switzerland engaged in the research, design and manufacture of nutritional supplement programs and products for multinational clients. LeDoux is immediate past chair of the Council for Responsible Nutrition (CRN) and current chairman of the CRN-International. LeDoux has been a member of the Natural Products Association since 1980 and serves on its board of directors. He is also a recognized participant of the Codex Alimentarius Commission.

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