Coconut oil is an edible fatty oil that is widely used in cooking and recipes. It is also used in industrial applications such as seasoning cast iron skillet, cosmetics, and soaps. The oil also provides a wide range of health benefits including moisturizing skin, food digestion, mental performance, hormonal support, immune support, and burning fat. It is categorized into subcategories that include crude coconut oil, refined coconut oil, and virgin coconut oil. The consumption of coconut oil is driven by different factors in different regions. For instance, in the APAC region coconut oil is widely used for cooking purpose because of its cost. However, in North America, the demand is driven by branded coconut-based products such as soaps and hair care products. Similarly, in Europe, consumers demands are on the rise due to the increasing use of healthy organic food and the shift toward a healthy diet. (Procurement Market Intelligence Report- Global Coconut Oil Market | SpendEdge)
Procurement Challenges in the Coconut Oil Market
Challenges Procuring Non-Adulterated Coconut Oil
Suppliers have found out innovative ways to adulterate coconut oil with various chemical ingredients, making it difficult to authenticate just by looking at it. Such actions have compelled the buyers to adopt frequent quality control initiatives and processes resulting in an additional cost for procurement. Such challenges make it difficult for buyers to procure non-adulterated coconut oil, which is why they are using third-party quality assessment agencies to assess the product quality.
Evaluating Suppliers’ Sustainability of Sourcing
Buyers in the market look to partner with suppliers who can maintain consistency in terms of supply. As a result, it is essential that buyers evaluate suppliers sourcing practices including environmentally sustainable sourcing methods to identify supplier’s capabilities. Additionally, buyers also conduct a supply chain risk assessment to identify possible supply chain disruptions. To conduct such studies, buyers usually do not possess visibility of the supplier’s supply chain strategy. Buyers in the market are looking at workarounds including concentrating on suppliers spending, sourcing from high-risk countries, signing a NDA with suppliers, and engaging with suppliers that allow vendors to audit them.
Fragmented Supply Base
The supply market for coconut oil consists of numerous fragmented suppliers. Most of these suppliers are incapable of fulfilling large-scale orders, so buyers have to procure the oil from multiple suppliers. Such act dramatically increases the procurement cost as well as the effort for contract management and supplier management. To tackle such problems, buyers usually engage with suppliers having regional presence to ensure consolidation of services.
Evaluating Suppliers’ Adherence to Regulations
Frequent labor law violations in emerging countries such as China, India, Philippines, and Vietnam are urging buyers to be cautious while partnering with such suppliers. In recent times, there has been numerous reported incidence of child labor prevalent in this country. Such known instances not only call for legal action but are also frowned upon by the people across the world. Accumulating bad press with child labor charges can put a big dent in the buyer’s brand name. Additionally, suppliers may face legal action including the closure of oil processing facilities, which results in serious supply chain disruptions. Apart from regulatory issues, the supply chain of coconut oil is longer than average, including small farmers, intermediate copra processing mills, traders, and distribution steps. Evaluation of the entire supply chain can be a laborious process and buyers can miss suppliers within the chain not adhering to relevant EH&S and labor practices.
Read more about the procurement challenges in the coconut oil market along with sourcing strategies, pricing insights, logistics and supply chain issues, and procurement best practices in SpendEdge’s upcoming report on the global coconut oil market.
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