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A Global Affair – tales of twisted supply chains

With news breaking that European authorities have determined that over two thirds of websites (779 of 1100 websites) are offering non-authorized products, or that the products carry unsubstantiated claims, the issue of e-tail gatekeeping now has global context. Member State authorities from 25 countries examined these sites and then executed follow up enforcement activities in 440 instances. The global nature of the supplement supply chain ensures that this activity in Europe indeed had North American ramifications. According to one industry source, the PayPal platform temporarily froze all global activity for at least one ingredient not permitted in Europe, but allowable in the United States.

Over the past three months, those of you following us know that we at Trust Transparency Consulting have been closely watching the online environment, and at one point even had someone from the product safety group at Amazon weighing in on our more critical observations. As we’ve continued our discussions with our global community, the following items become evident:

  • There are two possible formal supply chain touchpoints that many of these e-tail brands go through in order to reach the market – contract manufacturers, and the e-tailers themselves.
  • There is no simple handbook for the industry on best practices to help those that are keen to do the things the right way at the national level, let alone globally.

Let’s tackle the supply chain touchpoint issue first. Contract manufacturers frequently operate as turnkey service providers, often guiding the entire sourcing and product development processes. While many are thorough, responsible and compliant, others are not. For newcomers to the industry, it’s almost impossible to discern just how good a contract manufacturer is. True, you can look for certifications and association membership, but if you don’t know what to look for, you certainly won’t find whatever it is. And for those contract manufacturers that do not at least tell their clients about the totality of the brand compliance and quality responsibilities, these brands think they have little to no accountability – and behave that way. What would it look like for responsible contract manufacturers to provide a checklist (and maybe even introductions) that helps assure their clients are able to stay in business over the long term?

The other possible touchpoint is the online aggregator or e-tailer themselves. Obviously, those companies that quickly get a product made and sell it on their own website don’t have this touchpoint, but for those that do, and work through an Amazon or ‘equivalent’, it’s increasingly obvious that a risk-based checklist (and maybe even some vendor training) should apply at both company and product level. This though certainly changes both business model and potential profit margins.

Switching to the aspect of a ‘best practices guide,’ an industry rule book of sorts, there are many groups out there including certifiers, service providers and associations that offer pieces of the puzzle—if you know where to look. This is problematic. The analogy is developing a food product in your kitchen, scaling it up in your garage, and going to the local farmer’s market to sell it, knowing little to nothing about labelling, allergens and even possible salmonella contamination. Industry event education provides some of these tools, as do local incubators and accelerators, but the equivalent for the supplements world barely exists. And when you consider supplements as a global industry, the potential problems are even worse.

So, now the issue is global in scope, regulators are starting to look more closely, in Europe and across North America, and we can expect more disruptions to operations similar to that the ingredient frozen by PayPal.

Part of this issue would be resolved by a suite of services which are needed by emerging companies in the supplements universe. Another portion of this issue would be best managed by the online product aggregators. The final aspect is managed by acknowledging that earliest possible engagement with the industry trade associations needs to be an order of business. We at ITC advocate for all three components and see these as fundamental to a broader mission at industry self-policing.

To close, I am struck by how appropriate are the words offered by Unilever CEO Paul Polman at this year’s World Economic Forum meeting in Davos, talking about the companies palm oil supply decisions, “A lot of people think that if you outsource your value chain, you can outsource your responsibilities. I don’t think so.”