Why vertical integration matters in the nutritional ingredients business

Plant growing with water

Vertical integration is a business decision that involves many factors. But first, what is it and how does it benefit a business as well as the people who buy their products?

Vertical integration is simply the process of operating on more than one level in the distribution channel. By buying up most or all steps in the operation, this gives a company better control and oversight when it comes to their supply chain. As a result, a company is better positioned to offer both quality and lower-cost products to customers.

Another advantage of vertical integration is being able to streamline the process of obtaining supplies for its product, manufacturing it, and selling it. This allows a company to be more efficient and provide shorter turnaround times. At the same time, it shores up the integrity of the supply chain, minimizing and even eliminating potential disruptions.

 

Vertical integration addresses consumer concerns around quality and transparency

For nutritional ingredients in particular, knowing where they come from and how they’re made has become imperative for many buyers, from the finished product manufacturers to the consumers themselves. In fact, transparency has been a reigning consumer trend for the food and nutritional ingredient industries for most of the last decade.

Because vertical integration is the practice of owning and controlling several steps of the supply chain, transparency is a given should a business choose to allow customers access to their operations.

In earlier decades there was a strongly held belief that consumers didn’t need to know what was going on behind the scenes to produce the products they buy at retail. But times have changed, according to the Harvard Business Review article Operational Transparency.

“When customers are cordoned off from a company’s operation, they are less likely to fully understand and appreciate the value being created. As a result, they are less satisfied, less willing to pay, less trusting, and less loyal to the company over time,” the article said.

In fact, not only does transparency benefit end consumers, but it also benefits the employees of that business as well. How? Employees also suffer when they are cut off from the business’s front lines, as they lose the motivation and enjoyment that comes from making a difference in people’s lives and are denied the opportunities to learn and improve that arise from interaction with customers.

According to the organization Trust Transparency Center, consumers are more motivated to buy supplement products when they know where they come from. In a 2020 survey, they asked: “How likely are you to purchase supplements from a manufacturer that provides transparency information on its label or website?” Sixty-seven percent of respondents said that it would increase the likelihood of purchasing the product if they knew the source of the ingredients in that product.

Also, as reported in another Harvard Business Review article on supply chain transparency, researchers at the MIT Sloan School of Management found that consumers may be willing to pay 2% to 10% more for products from companies that provide greater supply chain transparency.

So not only can a vertically integrated company earn a higher level of trust from consumers, but it could also potentially allow them to charge more for giving them a clearer window into their operations.

 

OmniActive’s vertical integration from seed to sale

OmniActive operates a vertically integrated supply chain for lutein and zeaxanthin-based products that starts with non-GMO seeds and cultivation of marigold and paprika crops with a dedicated base of farmers in India to processing them into oleoresins and finally finished goods.

OmniActive has access to more than 1,000 germplasm lines of marigold and paprika crops that are used in plant breeding work to develop varieties. The scientists who develop our marigold and paprika varieties have a deep understanding of biological sciences. These varieties are tolerant to pests and diseases, high in target actives, and are adaptable to local conditions to produce good yields thereby securing the raw material supply.

OmniActive oversees every step in our vertically integrated supply chain. For example, when it comes to our Lutemax range, our non-GMO seeds are given to our exclusive farmer partners, who then cultivate premium marigold flowers. Our agricultural team educates the farmers on Good Agricultural Practices (GAP) guaranteeing we meet the necessary quality requirement to sell in various geographies. We continuously perform field visits, which gives us visibility on cultivation practices. Our selected farmer partners also abide by local laws and acts that oversee the conservation of botanicals.

The marigolds are then sent to our facilities where the initial phase of production begins with the drying of the flowers and fruits. The water extracted from the drying process is recycled and purified, then reused by our farmer partners or for processing in our facilities.

Quality control is involved in the screening and testing of input materials, in-process, intermediate and finished products. Contaminant testing, including microbiology, heavy metals, pesticides, and other non-routine contaminants, is carried out through accredited public testing labs using validated methods.

OmniActive holds several certifications and accreditations for its products and facilities. In 2019, we earned the World Quality Congress Award for “Excellence in Quality Management & Leadership: Best Nutraceutical Company” and in 2020, we received the CII Business Excellence Award.

 

Integrating corporate social responsibility

To further our sustainability efforts, we partner with our farming communities to minimize the ecological footprint of our agricultural practices. We also empower the farmers through a guaranteed buy-back program that protects farmer rights and their well-being.

Additionally, we address many of the most pressing issues in rural India through the OmniActive Improving Lives Foundation, which focuses on improving the health and livelihood of small farming communities.