What's the Cost of Ingredient Cost Control?

Processors and ingredient companies share their strategies for helping to control today’s high cost of ingredients – without impacting quality or safety.

By David Feder, RD, Technical Editor

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You can’t very well leave the fruit out of your fruit bar or the chocolate out of your chocolate chip cookies. Yet with the prices of some ingredients more than double what they were last year, you have to do something.

Processors and ingredient companies might seem to be at opposite ends of the spectrum when it comes to controlling ingredient costs. But it might surprise you just how in synch the two halves of the food processing coin are when it comes to keeping the costs of manufacturing down.

Think of it: If a processor cannot afford to buy good ingredients, where would that leave ingredient companies? While both sides have a few strategies to get through these hard, high-cost times, they dovetail when it comes to some basics.

One approach that at first seems counterintuitive is to look at ingredients that initially cost more. There’s a logic to spending a little more on the front end. At National Starch Food Innovation (www.foodinnovation.com), the focus is on efficiency of ingredient use as a balance to cost.

“We offer savings that go beyond formulating-out expensive ingredients,” says Dinah Diaz, market development manager for the Bridgewater, N.J.-based ingredient company. “We also offer the manufacturer cost efficiencies in (the areas of) supply chain, space, fuel, et cetera.”

“A more expensive ingredient used at a lower [usage] level may save a lot of money, improve shelf-life and increase overall effectiveness,” adds Rodger Jonas, national business development manager for PL Thomas (www.plthomas.com), Morristown, N.J. Taking it up a notch, he adds, “The onus is on the ingredient supplier to do more.”

And that’s what many of them are doing. “We work with our customers to assure that flavor is optimized in their final product,” says Amy McDonald, vice president of sales for FONA International Inc. (www.fona.com), Geneva, Ill. “Perhaps a different physical form or higher concentration — even a more expensive one — would deliver greater impact. This increased impact could allow the customer to reduce the flavor usage level in the final product and deliver a savings.” Danisco USA Inc., New Century, Kan., has gone so far as to create an online “Value Improver Guide” (www.danisco.com/value/pw/index.html) to help processors with ingredient cost control.

Hand in hand 

Late July

A Note of Caution

While most of this story was written before the full impact of the Peanut Corp. of America recalls, one processor raised a red flag about looking for cheaper ingredients.

“Although the cost of ingredients is important in any manufacturing business, the quality of our ingredients is most important to us,” says Nicole Dawes, president of Late July Organic Snacks (www.latejuly.com), Barnstable, Mass. “As food manufacturers, we must not lose sight of the importance of integrity and the hidden costs associated with using so-called ‘cheaper’ ingredients.”

“When vetting new vendors or renegotiating with current vendors, we never lose sight that no amount of savings is worth sacrificing quality. Instead, we try to work in partnership with vendors to make sure we’re ‘buying smart’.”

Vendors’ proactive role in controlling the cost of ingredients is reflective of changes over the past few years in how processors approach ingredients and how the ingredient companies work with processors. The role of ingredient suppliers in formulation development and revision has become an industry paradigm just in time for the recent economic upheaval.

“Strong partnerships with food and beverage manufacturers are hallmark of our ability to reformulate products to provide cost savings in a variety of ways,” says Judy Turner, applications manager for Tate & Lyle Americas (www.tateandlyle.com), Decatur, Ill. “The savings potential varies by category and level of customization, [but] cost benefits can be significant.”

Turner notes that cost optimization requires a partner with a “deep understanding of food chemistry, consumer demands and the synergies between ingredients and processing costs to help successfully adjust a formulation.” Pointing to the increased level of vendor interaction, she stresses, “Cost optimization is not a one-to-one, one-size-fits-all replacement of an expensive ingredient with a cheaper alternative.”

FONA’s McDonald has identified three key areas in which such synergy can work to keep costs under control: contracting, consolidation and reformulation.

“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.”

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