I hope to make this a series of articles about the things R+D scientists usually get screwed over on.
Being a product developer, you can get tunnel vision and just focus on getting strange, unique ingredients, make a great product, and then get roadblocked when you realize the material you made the product with can only be sourced from an ancient temple in a forbidden rainforest.
What’s worse, is that this can happen any time during the product development and commercialization process. In fact, I’ve had issues where we ran out suddenly during production causing purchasing’s head to explode.
As a novice product developer, I’ve learned the hard way about sourcing raw materials and had multiple problems happen when a material suddenly goes out of stock due to demand, or natural disasters, or poor planning.
Therefore, I’m here to share you the tips and tricks I use to make sure your product can keep on generating the company money so you’re still employed.
In general, raw materials are a collaboration between purchasing and R+D. Purchasing negotiates the deals and R+D has to test the ingredients. Having the proper knowledge and communication from both teams about raw materials makes the company better as a whole.
Commodities versus unique products
First off, let’s talk about how people buy things. In general, you have a spectrum of raw materials. Commodities on one end, and unique products on the other.
Commodities are things like oranges, wheat, and milk. Common goods that are widely available and its uniqueness only really depends on the quality, which is a very tight margin of error between companies.
However, commodities are highly volatile compared to other goods because there are so many factors that we can’t control that affect the price.
The most common example is the now insane cost of natural vanilla. At over $400 per pound, many companies struggle to source this stuff due to a variety of factors. Which includes: how long vanilla takes to far, the explosion of the natural food market, and the natural disasters such as cyclones and fire ruining the supply.
As we process commodities down to more unique products, their prices stabilize. This has more to do with the fact that these processed products now have a higher shelf-life (days become months, months become years) and that you can sell these unique products as a premium because they have a lot more value associated with them. The best example of this is something like a very popular orange extract sweetener.
The average product developer shouldn’t need to worry about this, but it does come up when purchasing recommends for you to reformulate a product due to this. This is actually also the best opportunity for cost reduction opportunities.
What if you run out?
I’ve mentioned before that good quality pea protein is very hard to find and what’s worse is that it’s very hard to find two manufacturers that are very similar to each other. Heck, I’ve heard it’s difficult for two LOTS to be similar to each other.
But what if you actually run out of materials? Well the easier option is that your product is out of stock. Yay!
A smart purchasing team will have a doomsday forecast where they will threaten you with the number of months it takes to run out of materials so it will be your job to test and vet alternatives that come your way. Ultimately, you have two options: reformulate with an alternative, or reformulate completely.
Luckily, you have leeway on this. If you reformulate with an alternative, you can put a bandage on your doomsday forecast by making a ratio between your replacement and your short-supplied commodity. However, as you know, this prolongs the inevitable destruction on your product.
Another option is to have your purchasing team bully the supplier for more. This gets complicated in the R+D realm, but in general, purchasing has the ability to lock in supply for next year, or get a guarantee that they will have a lot more next year. Unfortunately, this type of math is planned a year or two into the future, but at least you don’t have to panic and maybe you can just put a bandage on it.
Questions to ask when vetting raw materials
If you are formulating a product, you have the ability to prevent a lot of the hassles of doing a raw material change.
Of course, things happen. No one expected a drought, a flood, a fire, a flood and a mudslide in California, but here are some methods to test the long term. Ask these questions to the people you’re buying from and see what they say.
Size of the company where you’re getting the raw material: Bigger companies have a more stable supply chain and their prices are a bit more constant. The problem with big companies is of course, MOQ quantities. You also generally get less innovative ingredients. There are exceptions of course.
The issue with big companies buying a raw material is that they can deliver a “hug of death” which is that they demand so many materials, it eventually kills the company. This is decently prevalent in the plant protein world as it’s exploding right now and big companies want in.
How the raw material is processed: At the beginning of my product development career, I once wanted to use an extruded protein crisp made out of rice but then the VP of sales called me and admitted it wouldn’t be wise using it. He said it’s because the crisp is made of rice water that’s distilled to get the protein that is generally difficult to get.
At the time, I was bullish to get this crisp because it had the best texture and shape of any rice crisp I knew. And with a lot of protein loaded into it! At the end of the day, I learned that it’s much smarter to find a crisp that we were guaranteed supply.
Shelf-life of the raw material: Some raw materials can easily oxidize or lose their potency under certain environments. Though good companies should have data supporting this, there can still be some mishaps happening. It’s very important from the raw materials to the manufacturer, to use not-expired ingredients even at the bench stage!
Quality (and metrics of Quality) of raw material: Whatever your company’s values, you need to get the documents of the raw materials. If you’re a gluten-free company, not only get the gluten-free document but also the allergen statement!
In premium companies, documents can range from at least 20 pieces of paper per raw materials. Kosher, Halal, GMO-free, all of these are super important to at least leave a paper trail when you get interrogated by the FDA.
Quality is also a metric of communication. For example, how fast do they respond to you? How fast do they get you something? How funny are they on the phone? Customer service is probably one of the most important parts of sourcing raw materials as when they stall, they usually don’t have their stuff together.
