4 Variables of Smart Ingredient Sourcing
Sourcing ingredients is the bedrock of food manufacturing. Because it is an industrial process, bad batches can be a real problem. In order to prevent issues from occurring a lot of time, energy and attention must be dedicated to determine the right ingredient, from the right supplier, at the right cost. This daunting task can be simplified into a four-point checklist: quality, functionality, availability/lead time, and price.
1. Quality
This should be a top consideration with any sourced materials but especially ingredients. Quality must be a top priority when sourcing for human ingestible product. In order to insure quality, there are a few actions companies should take.
First, 3rd party certifications are a must, but do your research. Different auditors have different standards and certify at different points in production. Make sure you are getting a quality certified product that has been tested at the end of production. A good auditor will have a timeline similar to this: raw ingredient – test – blended product – test – packaged product – test. The frequency of testing allows for a greater accuracy in these audits, and could save you the major headache of a costly product recall.
Second, testing ranges matter! Make sure to use supplies that have strict ranges. Take the pH scale for example. There is a huge difference between 3 and 8 (one is basic and one acidic for goodness sake!) but in reality, some auditors use ranges this broad. Another example is yeast and mold spore counts; some companies aim for 10,000 while others expect less than 1,000. These broad standards could really jeopardize the integrity of your product.
Finally, a high quality standard is costly. This is not a part of production and sourcing you want to cut costs on. It is important to acknowledge that even though this is an added cost to you, it is added value to your consumer and will translate to greater returns. Investing in quality is worth it.
2. Functionality
When sourcing, you must understand the versatility of the ingredient, and how the functionality of said ingredient can vary. Different regions produce different variations of products that may be more fitted for a certain function or application. Learning these differences and staying on top of regional changes is vital in order to source the best ingredients for your products.
Consider guar gum. It is used in many industries, including oil and gas, food, pharmaceuticals and cosmetics. Because of its varied properties, it can be segmented into regions and grades. There is a specific food grade, as well as industrial and pharmacy grades. The food grade is further categorized based on function and application. Functionally it can be categorized as a thickener, stabilizer, gelling agent, fat replacer, coating material or other (emulsifier and binding agent).
There are four all-encompassing regions from where guar gum is sourced: North America, Europe, Asia-Pacific, and RoW (Rest of World). Soil pH, air quality and water quality all directly affect the ingredient and influence its grade and functionality.
In conclusion, in order to properly source, you need to know that application and necessary functionality of your ingredient. Then you need to know where to source from to appropriately meet these needs. Be aware that though the ingredient meeting your requirement was available from a certain region at one, it may change. Stay up-to-date on the regions local changes that could affect your ingredient.
3. Availability or Lead Time
How long will it be until you get your hands on the ingredient? How much time do you have? External factors will influence your supply chain. There will be unexpected delays, environmental abnormalities and product shortages. When selecting your supplier, factor in cushion time for interruptions and obstacles. It is also important to consider the international vs local market. Do your research to determine if the tariffs for international trade are worth the ROI. Determine if the quality of local suppliers is up to par.
The availability of an ingredient is also impacted by the capabilities of your supplier. If you get a great price from a supplier with one plant, consider the possibility that if something were to happen to that one plant, a natural or man-made disaster, you are out an ingredient. They don’t have back up warehouse or a quick way to start producing again in a different location, and you have to wait even longer to the ingredient you needed yesterday.
4. Price
Setting a price ceiling is a good way to start the process and narrow down suppliers; however, it is important to remember that if you get a great price on a low quality or functionally inflexible ingredient, it’s not actually a great price. Ingredient prices are largely determined by the previous 3 considerations. Certainly don’t forget about supply and demand. Sourcing trendy ingredients can increase your price margin but the tradeoff may come from your sourcing costs.
One key negotiation tactic is price locking. Creating a futures contract allows business to hedge risk by setting a price for a particular amount of time. These agreements can be advantageous as they neutralize price increase risk. However, having this set price also removes the chance for price decreases, thus it is important to complete research and the direction of the market to best avoid being stuck with an unsustainable price. Price locking is a good tool if the negotiated price is an acceptable margin and you are okay with giving up the opportunity to remove the risk in case of a market change.
In conclusion, take the time to understand what you are spending your money on when sourcing ingredients. Why is this ingredient that certain price? What are past prices on said ingredient? Is this cost effective ingredient sustainably sourced? Is this high priced product reflecting high quality, high functionality and readily available with low risk of interruption? Pause and define your priorities, ingredient application and function prior to checking out your sourcing options.