Ingredient Sourcing 101

Ingredient Sourcing 101

Sourcing ingredients is a key part of building out your supply chain. Although doing so can get complex very quickly, it doesn't have to. In this article, we'll outline: 

Important Documents

If you work with a co-packer, they'll likely ask you to provide the following. Even if you don't, it's good practice to have them on hand for your own reference.

Specification Sheet (Spec Sheet) / Technical Data Sheet

A spec sheet lists all components (including solvent(s), sub/limited ingredients, and colors) used to make the ingredient. Components are commonly listed in descending order by weight. 

Ingredient spec sheets may also contain things like expected microbiological testing ranges, shelf life, allergens, Country of Origin, and storage requirements.

Source (ttb.gov) 

Example


Spec Sheet Example

Certificate of Insurance (COI)

A COI is issued by the ingredient supplier to show that they have an active insurance policy. The COI provides information on the insurer, insurance agency, insured, types of insurance, policy numbers, effective dates, limits, certificate holders, special provisions etc.

Example

Certification Sheet

These documents establish that the ingredient has been certified by a third party to meet a certain standard. Some of the more common certifications are: Halal, Kosher, Non-GMO, Organic, and Gluten-Free.

Examples

non gmo certification exampleo
kosher certification example

Allergen Sheet

These documents establish that an ingredient either contains, or is free from, allergens like dairy or nuts. This will also specify whether the ingredient in question is processed on shared equipment with allergens, even if the ingredient itself does not contain allergens.

Example

allergen sheet example

Nutritional Sheet

These documents show the nutritional information for the ingredient, typically in 100g quantities.

Example


Country of Origin Statement

This document certifies the origins of the ingredient. 

Example


Ingredient Supplier Lingo

Free/Freight on board Pricing (FOB)

If a supplier quotes a price as FOB, it means the cost to ship the ingredient to its destination is not included. The FOB location is where the ingredient ships from. Freight can be managed by either the shipper (supplier) or the brand, depending on what the supplier and brand work out.

Delivered Pricing

If a supplier quotes a price as “delivered”, it means the cost of delivery to the destination is included in the price.

You may want to shop around for additional shipping options to ensure the supplier’s shipping quote is competitive. If their quote is high, typically the supplier is comfortable with you, the brand, coordinating and paying for freight yourself.  

Tiered Price

The price of an ingredient will vary depending on how much you buy. Most commonly, the more you buy, the cheaper it will be. 

Spot Price

The price of an ingredient, on a given day, which can vary based on supply/demand. 

Contracted Price / Purchase Quantities 

An agreed upon price/quantity that a brand will buy from a supplier for a certain period of time. This ensures a brand has access to certain ingredients at a predictable price and the supplier has guaranteed volume. 

Minimum Order Quantities (MOQ’s)

The minimum amount of an ingredient you need to order each time.

Lead-times

How long it takes from a confirmed purchase order to you receiving the ingredient. Prior to establishing a relationship with a supplier, you need to understand these so you can plan accordingly.

Ingredient Supplier Outreach

In the early days, similar to a co-packer, it’s important to think about your ingredient suppliers like investors.

Scale is incredibly important to suppliers and selling a few pounds of something isn’t what keeps them in business. This is where fostering a relationship and sharing the longer-term vision of your company can be helpful. They’ll be more patient and willing to help if they know who you are and where you’re trying to go. 

Additional Things to Understand 

How close is the supplier to the source?

Ideally, you're buying from the source. If they're just a reseller of the ingredient, that means you're likely paying additional costs since multiple parties need to make a margin.

Who else do they supply? 

Understanding who they supply is helpful since it will help understand whether you're a good fit. They may not provide this info but it can’t hurt to ask. 

Do they stock what you're looking for year round or just seasonally? 

A company may keep something in stock 6 months out of the year and then seldomly the remaining months. It's important to understand this upfront.

Can they send sample sizes to get you started? 

The answer to this should almost always be yes if you're planning to buy in a larger quantity eventually or the ingredient is really specialized. Usually, a supplier can send you something in between a tiny bag or bottle and the MOQ for a nominal fee so you can really test it out during R&D, in a larger batch, or during a line trial.

What is the freshness of the product they are shipping you?

Some suppliers will send ingredients that are close to their expiration date. You always want to ask them for the age of the product before it ships, or otherwise ensure that they’re shipping ingredients that have a pre-established minimum % remaining on the shelf life.