The Vanilla Shortage and Understanding How Your Supply Chain Affects Your Business

By Dr. William Oliver Hedgepeth
Faculty Member, Transportation and Logistics Management, at American Public University

There are many known elements in the supply chain and logistics business. But if you don’t thoroughly understand your supply chain, you can hurt or even destroy your business.

A manager or vendor knows what stock is missing from the grocery shelf, what perishables or dry goods need to be loaded into a truck, or what books travel on a mile-long conveyor belt to the mail distribution center. But there are some unknown facts or data that are not part of the normal, daily supply chain activity; these unknowns can stop your business cold.

You need to understand the depth of the supply chain for your main products or for the other 250,000 retail products that are bought and used daily. Each of those products offered for sale at Walmart, Target or other giant retailers has its own supply chain.

The Supply Chain Is the Most Complex System in the World

But what is a supply chain? The supply chain is the most complex system in the world.

When students in supply chain management courses are first asked this question, their usual answers involve a retail store or warehouse receiving packages on pallets or in trucks. These packages are then stacked on shelves for customers to purchase.

Ask anyone in your organization or your spouse about a supply chain and listen carefully to the range of answers. Most likely, they will confuse inventory or logistics with the very complex term “supply chain.”

However, students in supply chain management courses usually come up with some interesting definitions of the supply chain:

• My definition would be getting products from one place to another and as efficient as possible.
• Supply chain management is more than getting product or service from point A to point B. It is more about how we do it in regard to meeting requirements along the way.
• I never really put much thought into how large of an industry it is and figured it was just getting items from point A to point B with some little automated processes in between to route everything.
• I would say that they were the liaison between the business they are working for and the suppliers. They manage the inventory and facilitate where the products will be stored. They are also responsible for researching the best suppliers and alternative modes. I am pretty sure that the civilian sector works the same way and if not, it’s not too much of a difference.

Supply chains – everything from automobiles to winter boots to vanilla beans – are very complex systems, involving hundreds of steps or stops. They include diving deep into the product’s history, beginning with the raw materials used to make the product.

Many times, that raw material comes from the soil, a mine, a plant or a rock. It may also be located under the ground as water, gas or oil.

Careers in supply chain management call for qualified, educated people. They must know the complex network of transportation, economic factors, costs, physical limitations and any international conflicts that could affect their company’s final product.

Even a country that opposes what the U.S. stands for might be supplying needed ingredients to the American military, a local art supply shop in Taos, New Mexico, or a bakery in Manhattan. That country might not even know that the U.S. is part of its supply distribution process.

Natural Disasters, Tariffs, Conflicts and Criminal Acts Can Affect the Supply Chain

Retail manufacturers must regularly monitor the supply chain for possible negative effects from natural and manmade disasters. These disasters include hurricanes, shipping conditions, tariffs, plant diseases, civil strife or wars, and even hijacking.

The Vanilla Shortage: A Case Study in Supply Chain Management

Do you own or work in a bakery? Do you make or sell ice cream, coffee or chocolate? You might be interested in the supply chain of natural vanilla used in many common products these days. You might have noticed increases in the price of vanilla extract or some vanilla products.

The list of products that require natural vanilla in their supply chain is impressive. Products that contain natural vanilla includes various brands of protein bars and powders, liquid flavoring, some artisan and gourmet coffees, moisturizing lotions, natural Madagascar vanilla bean paste, shampoo, syrup, ice cream and many more.

When Prices Soared in 2017, Vanilla Disappeared from Stores Overnight

Vanilla was in the news in 2017 because its price soared. In fact, the price of vanilla has risen steadily over the past three years. For example, the price of vanilla beans was $100 per kilo in 2015. By the end of 2017, vanilla cost $500 per kg and its price is likely to increase further in 2018.

That became a big problem for retail supply chain management due to the cost of items that include vanilla as a significant ingredient.

Why should supply chain managers at Walmart or an online business that sells natural vanilla care about the very beginning of the supply chain that produces that final product? They probably don’t. But if they had been paying attention to the weather and disaster news off the coast of southern Africa, they should have been looking for a replacement product.

Figure 1: The price of vanilla per kilogram (kg) since 1990 to 2017. Image source: Financial Times

The unforeseen reason for the vanilla price hike was a devastating storm in 2017 that hit the island nation of Madagascar, a major producer of vanilla. The wind and rain damage destroyed 80% of the world’s natural vanilla, harvested from the vanilla orchid plant.

You might think that farmers could simply replant those vanilla orchids, but it’s not that simple. For example, the supply chain for the seedlings or seeds for the orchids is also complicated.

Compounding the problem of replanting thousands of acres of orchids is the fact that vanilla plants require about three years to start producing beans. The sensitivity of the plant is another issue because each flower blooms for only one day.

Harvesting vanilla is not easy, either. About nine months after pollination, farmers pick the green pods and dry them in a complicated process that generally takes another three to six months.

Some alert supply chain manager could have gotten a jump on replacing natural vanilla with artificial vanilla or vanilla from other sources. There are other countries competing in the vanilla industry, producing what is known in the baking industry as Tahitian vanilla or Mexican vanilla.

Vanilla Supply Chain Involves Supply Chains for Plastics and Paper

The vanilla supply chain includes other factors as well. Vanilla is often packaged in small, two-ounce bottles made of plastic. The plastic bottle uses petroleum extracted from drilling in the Arctic, the Gulf of Mexico or another location, which also involves a supply chain.

Also, the paper for the label identifies the contents of the bottle comes from another supply chain that begins with growing trees for harvest.

A supply chain is a network of farmers, miners, fishermen, scientists and truckers. Supply chains also involve ocean-going vessels, aircraft, trains and pipelines. Other components that affect the supply chain include famines, wars and political barriers to trade and commerce across borders.

The supply chain is really a supply network involved in every product that is manufactured. Supply chains are like the threads of a gigantic spider web constantly being pulled, torn and repaired, with information and products flowing along each thread in a constant pattern of commerce. It is an exciting and daunting process at the same time.

The job of a supply chain manager is not just to oversee inventory in a warehouse or place purchase orders with a vendor who has another warehouse and another supply chain. A supply chain manager must look at all of the issues that could disrupt production of a final product that customers want.

Remember: what you don’t know about your supply chain can hurt you.

About the Author

Dr. Oliver Hedgepeth is a full-time professor at American Public University (APU). He is the former program director of three academic programs: Reverse Logistics Management, Transportation and Logistics Management and Government. Dr. Hedgepeth was a tenured associate professor of Logistics and chair of the Logistics Department at the University of Alaska Anchorage. He has published two books, RFID Metrics and How Grandma Braided the Rain.