What's the Cost of Ingredient Cost Control?

“We encourage customers to set up year-long contracts for their key flavors based on their projected requirements for the coming year,” McDonald says. “This (might) allow us to lock in raw material prices at the best possible time and reduce the potential impact on customers.”

The advantages of consolidation are multifold: “Moving significant flavor volumes to a single supplier often allows for a guaranteed savings incentive. Further, quality control or transportation savings may make it a worthwhile project for a customer to consider.” 

But consolidation isn’t only about number of suppliers. “We work closely with customers to identify opportunities to save money through projects like flavor consolidation,” McDonald adds. “For example, a customer may reduce the number of vanillas they buy from 20 down to six or eight.” According to McDonald, while an initial investment of product development time and sensory analysis may be required to consolidate flavors, the ultimate end can save money. 

Nicole Dawes, president of Late July Organic Snacks (www.latejuly.com), Barnstable, Mass., says she appreciates vendors that can help with logistics, such as consolidating orders to save on freight, or providing a forecast to help clients know when to buy or lock in a price.

When it comes to reformulation, McDonald ascribes the role of coach to the provider. “We suggest customers truly evaluate the expectations of their consumers and the needs of their brand. Does the new line of hard candies really need a natural and artificial flavor or will an artificial suffice? Do the savings between a current version of a flavor and the artificial version make the sensory testing required to make the switch worthwhile? We often will work with customers to reduce costs by removing unnecessary high-cost raw materials and replacing them with less costly counterparts.”

Optimization in action

PL Thomas’s Jonas agrees with the merit of working synergistically with processors, explaining how doing so can help fine-tune ingredient usage. “We educate customers on using ingredients by functionality and identifying how to optimize the use of ingredients. The term I use is, ‘directionally correct’ when most companies employ ingredients but don’t optimize. (For example,) guar gum has different types that give different results. The supplier must understand how to apply the ingredients in order to help the customer use the correct ingredient and at the correct level.”

He adds it “isn’t enough” just to employ a nutritional ingredient — how much will be left after processing is the real consideration. “This has become a critical point for us,” he says, “as simply providing ingredients is not our only goal. We believe functionality, coupled with the application, is the driving force for future ingredient use.”

In other areas, food and beverage manufacturers are seeking advice on how to optimize formulations for better performance. “The industry seeks improvements in how to better protect delicate flavor systems from oxidation, how to extend shelf life or the desire to have higher-load systems to allow for lower usage levels in the final formula,” says National Starch’s Diaz.

As an example, Diaz points to the company’s starch-based encapsulation products. “These same groups may be seeking ways to maximize efficiencies in productions, including preventing losses such as those from dusting or sticking.”

To change…or not to change

Processors blanch at the thought of changing a well-researched, well-used formulation just to save money. And they should — such moves are not without risks. But changes may come, so ingredient manufacturers have been increasing their technical support capabilities to prepare for that day. 

Ingredient requalification is finding an equal product that will work the same in a formulation but can be contracted in advance to lock in a price.

“Food and beverage manufacturers usually tend to be reluctant to make any change in production [yet they] express willingness to give such requalification high priority,” says Ronny Hacham, vice president of business development and marketing for Gadot Biochemical Industries Ltd. (www.gadotbio.com), Haifa, Israel. “Obviously, this should only be done whenever it is applicable.”