Business Management Jack Watson

Organizational Change

Solgar is one of the foremost manufacturers of vitamin, mineral and herbal supplements in the nation. It has a long history of providing quality products to consumers who are interested in alternative methods for improving health and treating ailments. Throughout its history, Solgar has been faced with a number of changes that have fundamentally altered the way in which business is conducted. From the passage of legislation to the discovery of new supplements and uses for supplements, the organization has been faced with difficult challenges and has found a way in which to cope. Over the next twenty years the vitamin industry is challenged with a significant number of external forces that will undoubtedly cause Solgar to change the way it does business. One specific change that is virtually inevitable has to do with the regulation actions that were enacted in 1994 by the Dietary Supplement Health and Education Act signed by President Clinton. Many of the stipulations that were detailed in the bill have never been fully implemented but considerable action has been taken in Congress to change that fact. Much of the impetus behind the change has to do with recent problems with supplements that have made significant headline news. Therefore, Solgar is faced with major changes in how it will be regulated and while these changes may improve the quality of the overall product and methodology for distribution, it may also signal the end of the company and many companies like it.

This paper focuses on the changes that will undoubtedly impact Solgar over the next twenty years by analyzing the driving forces behind the changes and by examining the possible outcomes of those changes. To accomplish this it will be useful to examine how the proposed changes affect the demographic, economic, technological and social impact of the changes to fully understand how Solgar's business will be modified. Once those elements have been determined it will be possible to discern two different outcomes that could be reached as a function of implementing those changes. Through this analysis it will be possible to determine in which ways the major changes imposed by legislation may affect one of the country's largest manufacturers of vitamin, mineral and herbal supplements. However, as Schwartz points out "Scenarios are not predictions. It is simply not possible to predict the future with certainty." (1991, p. 6) Therefore, these determinations are simply possibilities of future events. Nevertheless, it is a useful exercise to examine what the impact of those changes could be in a long-term model.

Driving Forces

With the signing of the Dietary Supplement Health and Education Act (DSHEA) of 1994 a new wave of regulations were established to control the manufacture, distribution and education regarding nutritional supplements. A wide array of changes came out of the bill and new definitions were established to make the act more encompassing of the supplement industry. However, in spite of the importance of many of the requirements in the bill, much of that language that will dramatically change the industry has not yet been implemented. In particular, the establishment of Good Manufacturing Practices or GMPs has never been imposed by the FDA despite being given the power by DSHEA. Much debate has surrounded the necessity of implementing such standards to assure the safety, accuracy, reliability and authenticity of materials in supplements but the FDA has not established industry wide standards thus far. Part of the reason that the changes have not been implemented may be due to the control of Congress and the politics of the issue but the industry is well aware that it is not simply a matter of if, but a matter of when.

The implementation of GMPs will fundamentally change the manufacturing process for supplements and add a considerable layer of cost resulting from the required testing, research and tracking that will be required. As a result, the number of supplement manufacturers that will be able to compete at the level required to maintain profitability will undoubtedly decrease extensively. One possibility is that giant corporations will emerge as a result of mergers and acquisitions that will necessarily take place as a result of the imposed regulations making the nutritional supplement industry look more similar to the pharmaceutical industry.

Another consideration that will result from the change is economic. Undoubtedly, the costs of what are now extremely low priced supplements will have a significant increase in costs to offset the increased manufacturing expense. It is not unreasonable to assume that the costs associated with many supplements will...

A further possibility is that a significant reduction in the number of supplements available to consumers will be radically reduced because of the costs in managing the long-term requirements for each individual supplement ingredient. For example, some nutrition companies manufacture more than 1600 different supplements meaning that for each supplement a separate system for tracking and monitoring the materials will need to be in place. As compared to a pharmaceutical manufacturer which often has less than twenty five products, the costs will be virtually unbearable by the companies in their present structure.
It may be that significant technologies will emerge that will help to minimize the costs involved in testing and production once GMPs are established by the FDA. For example, technologies have emerged in recent years such as the FTIR that have reduced the amount of time and costs involved in testing raw materials used in supplement manufacturing. Advances have been made with next generation FTIR devices that have provided heightened accuracy and broader applicability. However, the FTIR is notably limited in its testing ability because it can only detect individual substances and cannot give readings on any product that is not pure. Additional technological advances are important if the changes that are included in DSHEA take place.

One factor that should be considered is the social influence of what would undoubtedly be the restriction of nutritional supplementation availability. Societies have relied for millennia on the healing properties of various supplements. From the soothing abilities of the ginger root to the simulating effects of ginkgo biloba there are many consumers not just in this country but in others that rely on taking quality nutritional supplements. It is no doubt that the regulations proposed by the legislation would be onerous based on the information previously discussed. Consequently the supply of supplements will naturally be negatively impacted preventing many people who rely on the health benefits of these products from obtaining them.

Consequences

The consequences of implementing the Good Manufacturing Practices in theory sound like an ideal step to improve products that consumers purchase. However, legislation of this nature necessarily assumes that all companies fail to provide their own processes to assure the products they provide are of a high quality and are safe for use. Still, the poor choices of some have put the entire industry at risk and have potentially prevented many people from obtaining the nutritional supplements of their choice. Thus, based on the analysis of the directions that Solgar could take as a result of the imposition of such standards two distinct possibilities are worthy of analysis.

The first reality envisions a nutraceutical industry that is very much like the pharmaceutical industry only to a larger degree. The companies that manufacture vitamins, minerals, and herbs for consumers merge into two or three major conglomerates with the resources and wherewithal to support the mandated regulations and still remain competitive. As a result of the mergers and acquisitions many of the people who work industry now will be forced to find employment elsewhere. This is not a purposely bleak projection for the workers of those companies but should be mentioned to describe the impact of the change. Further, the cost of nutritional products could rise to the highest level ever with the fewest number of supplements available. Most retailers will only be able to carry basic vitamins and minerals which may be kept in the pharmacy area because of their enormous expense. It is not out of the realm of possibility that the supplements themselves will be provided by prescription only and be covered under health plans. Unfortunately only a small percentage of the people who now use supplements for prevention will be able to acquire them and then only after being treated by a physician. This reality is not intended to be purposely dreary but simply reflects the necessities of doing business in a competitive environment with the number of products being considered. The major costs associated with medical trials, research, product tracking and other steps that are required by the drug manufacturers are simply not possible for the number of products manufactured by many of the larger supplement companies such as Solgar.

The second reality is one that effectively closes down the industry because of the costs involved. Companies faced with such significant requirements as imposed by DSHEA may at first attempt to comply but in the end may only be able to provide one or two products. Many of the companies that are in the industry…