Episode 2: Raw Material and Ingredient Sourcing - Documents and Working with Suppliers

[Music] Welcome to Food Products FAQ, a podcast where we discuss how we make food products and the sets it takes to make yours. I'm Adam Yee, an AppRite and Child. We're both independent food consultants who've been through the food industry for over a decade, and we're here to share with you how we make great food products that have been sold in thousands of stores. All right, episode two, if you listen to episode one, it was a great overview of research and development. Now, in episode two, we're going to go granular and talk about ingredients or as they call them industry raw materials. Definitely, it's all about sourcing, it's all about supply chain, what to ask, what to do. Yeah, I mean, this is pretty exciting and of itself for those who are culinary. Exciting. It is. I think it is exciting just because for me and you, we get a lot of different samples, you get to experiment with all the different samples of ingredients. I think that's an exciting part. It's like you're receiving Christmas gifts quite often, when you request a good amount of these different types of ingredients and raw material. I do agree. Luckily, we have some connection. Most ingredients suppliers will get into this quite a lot. We'll give you free samples of tests because they expect a bigger payout at the end of the development cycle. But yeah, I do find it pretty fun. Sometimes you can get overbearing, but I think for food consultants specifically, it's important to ask very, very specific asks. And you are talking to people who aren't familiar with technical terms. So there's also a way of asking as well that makes things a little bit more easier on your end. Definitely, definitely. Yeah. And just because a client of mine would buy ingredients from say the supermarket or wholesaler, that doesn't mean that it is commercially viable. So we get into the granular details asking for specification sheets, certificate of analyses, things of that nature, so that it actually helps inform us about food transparency, about food safety measures, about what exactly is inside that ingredient and how we can actually utilize that ingredient in a commercially viable formulation. Yeah. So we probably have a lot of friends or a lot of clients that do buy, essentially stuff from a grocery store, right? And sometimes when I do very basic or small scale development, I have to do that as well because it's just the fastest way to do it. And this involves like, I don't know, buying a flower, like a one pound of flower at Safeway or wherever you get your groceries at and testing it in your home kitchen. There are much more economical ways to do that, especially as you scale. Yeah, definitely. Yeah, it's, I mean, now I'll go to Jewelosco, Costco, things of that nature. Jewelosco is the Safeway, is a Safeway brand over in the middle out here in the Midwest. Yeah, it's, yeah, you walk into the store, Jewelosco. And essentially it looks just the same as the layout. It almost feels the same in terms of that type of color spectrum that they use in Safeway. And how they put out the design of the pricing tags and these are the nature is very much the same as well. Yeah, let's try to talk about the tier list of like how we believe ingredients are bought. So I think one tier is the grocery store, right? So you get things that are in a pound per pound, level are really expensive. And then once you kind of graduate from that, like your kitchen and maybe you go into commercial kitchen, you then start diving into wholesale and things like as their market or, you know, Costco's a good one. I use Smart and Final a lot in my home pound. And that's where you can buy bulk ingredients like 50 pound bags, generally for a restaurant scale. What does the good store web stront is a good store for that, which is online. Yeah, restaurant depot, US foods in some extent, I'd say. There are a few, I call this like the wholesale category. And then and then like in that by working like a commercial kitchen sense, I think you can get quite a bit of stores out of that maybe in the round the five to a hundred store route. You can probably aim for that and then once you graduate from that specifically in manufacturing, we'll just call this the manufacturing scale. Then we go into this very, very new process of raw material sourcing. Yeah, and that's where you're looking at to working with brokers, distributors or even ingredient suppliers depending on the volume output. And these are ingredient manufacturers that supply massive volume. We're talking about more than pallets like oftentimes if you're looking at straight from manufacturing of say peanut butter, for example, and you want a custom made salted, roasted, unroasted, speckled, whatever you want. You're looking at container loads of a lot of it if you're at that level. And if you can't afford container level, then essentially you're working with the distributor that can help break down the volume at a higher cost. And then you can even go further into working with a broker that just gets you a pallet at a time, at a even higher cost than that. So there's a lot of levels here in the supply chain that people may not be aware of. And it's essentially how far into the source and how small of a cost of good sold range do you want to work with? Yes, I would say the industry runs on pallets. What I've learned quite harshly is that because things run in pallets that minimum order quantities generally are pallets worth that it can be very hard to manage and mitigate what ingredients you need now and what ingredients you need later. And sometimes in certain stages of a company, a certain ingredient will work now like let's say a wholesale ingredient versus a manufacturer of raw material. I think it's different in this in this pod task. Let's go with the small scale store by the bigger scale, which is like restaurant is wholesale and then the biggest scale. What do you want to call that? You want to call it raw materials or we call it raw material or call it a sourcing initiative. I don't know so. You get to a sourcing initiative. Manufacturing level. I do that. Manufacturing level. Let's go with that. Yeah. So the pallets or we'll get the order pallets and ingredients that's like the manufacturing level. So when we talk about these three kind of slots of scales of ingredients, this is what we're talking about. So in the manufacturing level, things are a lot different, right? Just just on the top of the head, do you? What do you? What do you kind of describe as a difference between store bought flour versus manufacturing level flour? It's the level granularity that you can have in terms of protein levels, in terms of where it's grown, how old that particular product is. And essentially if it's bleached type of flour, unrefined, type of flour, like a whole grain flour, things of that nature, you have more control. So if you're looking at say flour, let's say, let's talk about wheat flour specifically. I had a client that wanted to take a look into making different types of breads. I mean, I work with the manufacturing bakeries. And essentially to transition some of them from say wholesale manufacturing into contract manufacturing, they have to figure out who's a reliable source of say flour and they're different types of flowers. There's flowers specifically designed for pizza making, right? They have more gluten and things of that nature. Same could be said with bread. And then if you're going down to the cake level, you don't want too much of that gluten. You don't want that crust on a cake. You want something that's more soft. So there's less protein in that sense. And so these are the slight nuances that people may not be aware of. That is more readily available once you actually go into a manufacturing scale because the intent is you're making volume of pizza. And it makes more sense economically to get the large volume straight from the manufacturer rather than going through multiple tiered approaches, whether you're buying from Costco. If it's Kirkland signature, that's their private label. So essentially you're paying for that extra middleman and the branding and the packaging behind it. So essentially if you cut away from all that and you're preparing yourself for manufacturing scale, you're saving a considerable amount of money because you're cutting out all the different middlemen. Yeah, it's definitely a scale game in this case. When you order more of a single ingredient, you can negotiate pricing pretty aggressively. And if you get in the sweet spot where you can order a lot of it, they will cut the pricing down. I think what's also very important in the in the mail. manufacturing side is the documentation because that gets super important. There's a lot of new things that happen when you are now having access to getting documentation. And this kind of only happens in the raw materials spec where you are serving millions of customers outside of your little manufacturing plant. And we should definitely dive into that because I think a lot of people don't understand and I also think it's very valuable to get into this documentation game very early as you scale your food product. Yeah, Adam, let's talk about protein. I know you've done a lot of protein bars, protein different types of protein products. When you're out in whether it's wholesale or even retail and looking at that level of protein, what's the difference that you find in protein level from there and versus out of manufacturing level? Yeah, I think it's one it's really expensive to buy protein from the store and it's almost a possible to find protein in a wholesaler. I also think that we as food scientists look more for the functionality of the protein than just pure protein. Most of the protein you get from a gym store or a safe way or gruggler or whatever, those are just standard protein sources. There's nothing unique about them, but as food scientists, we can get really, really granular about the protein we want. So not only can we, let's say, get a great quality way protein, for instance, but we can also get a way protein that emulsifies or that that can dissolve in water and look personally clear. There's stuff like that now. We have access to a specific type of food manufacturer who creates these specialized proteins, for instance, that are very, very valuable in certain amounts in a food product. And I think that's kind of the secret sauce is that not only is protein that way, but almost every single ingredient and when we dive into flavors, that's another very interesting industry. Almost every single ingredient has a branch off or a specialized version of it that accomplishes what you need to do. And we have access to that and we can talk the language of getting that to help improve food products. Yeah. And how we actually find out that information is asking for the specification sheets, the 100 gram nutritionals, which is more granular than what you'd find from an FDA nutrition label or supplement label when you buy from a store. Because those are rounded numbers versus that of full to two decimal points in some cases, depending on the supplier that sends you the documentation. And not only that, the specification sheet in general tells you a lot more about storage conditions, the shelf life, the protein levels. If there's any safety measurements that we need to be keeping in mind, sometimes those products are ready to eat and sometimes they're not ready to eat. And we have to require us to cook it further. Yes. I think what's also important to understand is with these specialized types of ingredients is that they have trade names associated with it that are that I've learned have become very valuable when I develop. So one example is like there might be a way for it to call ProVon like one two three, right? But ProVon two five six is much different than ProVon one two three because ProVon one two three specifically states on the spec sheet, it's a standard way protein. It doesn't dissolve in water while ProVon two five six will dissolve in the water. And the reason why I'm saying these random numbers because they do put numbers on these specialized ingredients. And it's not just protein, but also it could go as simple as salt. You know, there's so many different types of salt, especially sea salt, you know, the granulation of the salt, what kind of minerals are in the salt, aside from sodium and chloride. There's a color to the salt and there's just a lot more than what you find from say diamond kosher salt or the moron iodized salt. You can have iodized, you don't have to have iodized. If it is a sea salt, you know, which sea is it coming from, things of that nature. So it's, we make it sound complex, but it starts to become easier once you see the different tools that you request for when you are looking over say the specific sheet. So the most important at the end of the day is asking for the specification sheets. Yeah. And let me give you like a really, really brainy example of this. When I worked in the protein bar industry, we would work a lot with way protein. And what I discovered was that you can source something called hydrolyzed way protein. And yeah, I know that sounds scary, but basically that just means that proteins are just long chains of amino acids. And what happens when you use regular protein in a protein bar is that they create a lot of hydrogen bonds with the other long chains of stuff like carbs or, or, yeah, mainly, or even fibers, five or five or such is the big one. And they intertangle and they turn a bar rock hard. When we kind of dug into it and asked about hydrolyzed proteins, which are basically using an enzyme to chop up those proteins, when you add them into a protein bar formula, because the bonds don't form these entangled chains, the bar is a lot softer, a lot more valuable, a lot more palatable to chew. And it tastes really good. I would say most of your protein bars use hydrolyzed protein of any source, just chopped up little protein chains rather than kind of the standard longer chain ones. And this is a lot of food science stuff, but it is something that we discuss quite regularly when we design and develop food products. Definitely. I mean, when we have communications with not only the supplier or suppliers, but also this type of communication happens when we're doing taste testing with the clients at the end of the day. And essentially, we are translating all the technical knowledge over to make decision-making and strategy easier for you as the client. So essentially, you're hiring us to be able to understand all of this. You don't have to understand all of this. We've gone through the training to understand all of this so that we can help you. That would agree for this. Yeah, exactly. We have degrees for this. And that's really what it is. We're trying to demonstrate to you that just because you have a recipe that you have sold in the market made from a commercial kitchen space doesn't necessarily mean that that is scalable, right? You can defend that, oh, I'm working with Costco, et cetera. But if you want a business that's more viable for you at scale, we need to take down, say, that protein that you're buying from GNC and dissect it and figure out, okay, if is it a pure protein, most of them are not. And what do they add to that protein to make it more palatable for people? Because pure protein isn't as tasty by itself. That typically means they have some sort of natural flavor and a lot of them use a natural vanilla flavor. So now we have to figure out, okay, what type of vanilla flavor is comparable? And there's a lot of different suppliers and a lot of different flavor profiles around vanilla. Is this a French vanilla? Is this a vanilla that's coming from like the bourbon islands? Things of that nature. A one-fold or one-time concentration, two-fold, ten-fold concentration. There's a lot of nuances that we have to figure out. And some people may say like, oh, it could be the tarwhar of things if you're in the wine industry. We don't necessarily go as granular as, where's the tarwhar in some cases. But it's to that same methodology or framework that we have to be a little bit more granular so that we can match the flavor profiles that the consumers are used to as best as we can. And it could be said in that same protein. And I just say this because I'm working with a client right now looking at reverse engineering a protein bar. They've been successful in their own right from a commercial kitchen standpoint. They've identified a contract manufacturer. The thing here is that protein powder that they buy has also sugar. So we have to figure out how much added sugar that was not on their label has to be added back to their label or figuring out a way to make sure there's no added sugar but enhance the sweetness in some capacity. Yeah. I mean, reverse engineering, this is kind of the whole ball game, right? The good news is that honestly most food products do have the same ingredients when you really dig it down to it. And so therefore if we have the library or knowledge base to understand what these ingredients are and I'll be frank, there are maybe 50 ingredient companies that control probably 99% of your of the food supply chain. It's easy for us to access that. I think let's let's talk about flavor houses a little bit. I think that's a thing that a lot of people find very surprising about the industry in that when we when everyone makes products, they assume like let's say there's a strawberry bar that they use like fresh strawberries, purine down to a jelly or whatever and then put into the bar. Generally, that's not true, right? Right. I guess it depends on the application to in some cases, if you're talking about jams and jellies and the contract manufacturer has the direct source, let's say they're in the Pacific Northwest where Oregon in terms of Oregon, they've grown a lot of blueberries. If they have access to that directly in IQF and these are that nature. And sure, they'll utilize that. But sometimes if you're a contract manufacturer, you're manufacturing yourself and you're not within a good distance away from said raw material, you are looking to a natural flavor. And sometimes it's more cost effective to look into a natural flavor. And these flavor houses essentially are ranging from small medium to large in scale and volume with a team of flavor scientists, which by the way are the most paid in terms of a of a food scientist. That's how powerful the flavor industry is. Because essentially without this flavor, these aromas, taste modulators, or flavoring agents, you won't have consistent flavor in your final product for a very long time. Whether it's consistency for every manufacturing run, whether it's consistency for the duration of the shelf life of the product. And that's something that people don't seem to understand is that when I work with clients who want added flavors, who have been established in the industry, that's mainly because they have some sort of objective. They want some sort of cost of goods sold that doesn't fluctuate due to seasonality of fresh or frozen products. They don't want their shelf life of the product to naturally oxidize or degrade over time. The particular product may not be flavorful inherently, and we need to add in vanilla, for example, to be able to enhance flavor notes and things of that nature. And this industry can be very complex. It's even more complex because a flavorist has to go through extensive amount of training, testing in order to be called a flavorist. And there's apprenticeships behind this. And there's not a lot. I think there's only 300 flavor scientists in the world. Yeah, it's a very interesting field. We don't even know a lot about it. Honestly, I feel like every time I talk to a flavor scientist there, they're like magicians. I mean, you can ask literally everything. You can ask them to explore. You can ask for chili crisps. You can ask them for more chili crisps if you really wanted to. And they will make it for you. They'll send them to shoot in two weeks and be like, what the heck? This is actually taste like it. Or sometimes they miss them more completely. They're not miracle workers, but they are magicians. But I would say that this is a pretty well-known secret in the food industry to use these natural flavors. Everyone uses them. There are certain points where they achieve the job very, very well. And I also think that they're also easy to work with as well. Especially if you know the companies, they have a very, very robust way of translating what you're asking for into a flavor. So I will say that skilled food scientists are a lot better at asking for these types of flavors than someone who's doing this on their own. Definitely. Yeah, it's basically, again, it's the language. It's a lot of translation. It's when you're working with a flavor scientist, they're 50% hardcore analytical chemistry to which fruit scientists are trained in chemistry and a little bit of analytical chemistry. And try and speak analytical chemistry. And the other 50% is more of that artwork. So the design and what kind of molecules do they want to enhance the vanilla or enhance the cocoa notes in things of that nature? And so it's kind of asking sensory or flavor notes. I kind of want the aroma of the vanilla to be very strong up front and then some floral notes in the back of this whole time period of things. Because while they imagine food or flavors, it's very much time and versus concentration or intensity. And so when you're sitting down and you're enjoying food, whether it's gourmet food or fast food in things of that nature, that entire time period from beginning to end has a lot of flavor interactions, whether it's up through your nose or through being absorbed through your mouth. Essentially, that is being timed and how intense that flavor profile is is what they're going to put into the flavor to give you something that's very similar. Yeah. And I mean, I just want to say I talked to account executive more more so than I do the actual flavor scientist. And generally I can get the mark pretty well with even an account executive who translates what I say to the flavor scientist. And if I really if I really think they missed the mark, then I will talk to the flavor scientist to get a better idea of what a what we're aiming for. Yeah. And you can get multiple samples too. It's not. Here's one. And then you weigh in other two weeks. Here's one. They'll give you five at a time and then you narrow down the scope in that sense too. Yeah. I think we'll get more into vetting later in the series, but you know, the flavor industry again, extremely crazy industry. Everyone does it. It's really hard to find information about this unless you go to like essentially a conference about food, which I find really, really interesting. Again, it's no like cult secret, but it is kind of this thing that's really hard to explain to a lot of people. Yeah. And it's all generally recognized as safe ingredients in things of that nature. Yeah. It is ubiquitous in the industry. Let's move on to kind of documentation. And I think a big one that we always ask for when it comes to getting these manufacturing ingredients or are these the food manufacturing scale ingredients is a certificate of analysis or a CFA. Why do you ask for a certificate analysis? Certificate analysis is important for two major reasons. One is more for the food manufacturing or food safety plan because they want to know that this has been certified as the ingredient that they receive because a lot of the different ingredients you receive kind of can look similar to each other like white powders or beige powders in things of that nature. So in order to accept something, you want to have the certificate analysis proving that this is what it is. And you look at the granular detail in that sense. Another thing is from an R&D standpoint, a COA is helpful in terms of identifying, you know, this is what I receive as a sample, but also how do I utilize this type of ingredients? Yeah. I've been working on a few food safety plan projects and I also say CFA are extremely important. It documents that what you're getting is legitimate. It documents that the tests are doing are legitimate because sometimes the tests they just are not legitimate in some cases. And it just tells you in general if one, the source you're getting this from is actually legit or not, I always bet that to it is always important to get this because in case of let's say an issue with your product and there's there can be a lot of issues with your product. CFA is our good tracker of understanding what could have potentially gone wrong. And if you can access that your ingredients are okay, it makes things a lot easier. Definitely. It helps in terms of narrowing down what ingredient influences from food safety standpoints, the potential risk when you're actually commercializing the product. Even a quality standpoint too, because like, if your flower is on your protein and you don't know if your flower hits that protein mark, then you can get in trouble for that in certain situations. What are the documents you usually get when you dive into this? Or is there a time and a place for certain documents? The most important upfront would be the COA spec sheet and 100 gram nutritional. And then as we're going towards say, round three of development, commercialization preparation, essentially is asking for hasa plans, third party auditing systems or third party reports. Sometimes affidavits are okay, depending on what kind of process is protected by intellectual property. We're also taking a look at any safety data sheets if there's more of these minerals, raw minerals, supplements, vitamins that are being utilized. And then other ingredients, sorry, other documentation is related to allergens, related to non-geomo organic certifications, kosher certifications. So those are a little bit later. It's good to ask if these ingredients are able to land in a particular marketing certification, because that's more related to the branding now, but it's not necessary until the end goal. Is that at the end of the day, what we want to do is be able to provide you the appropriate functionality at the right cost of gets sold with the right flavor profile that you're looking for. And these marketing certifications can come after because there can be a primary or secondary supplier that can be provided to you. And either one, two or three in some cases can provide you the necessary typo certification. Yeah, let's clarify marketing certification. I think that includes kosher, non-geomo organic. Hello. Hello. This is a good one. Blue and free. Yeah. Any type of allergen free type of notification or plant-based vegan upcycled, those are new ones that are coming into the market, but the established ones are your organic kosher, non-geomo and hello. Yeah, and these certifications, they specifically rely on documentation to be the the main source of validation for these claims. And, you know, claims kind of make the world go around in that sense where these documentations are extremely important for liability purposes. They leave a paper trail that protects you against most legal things. If you don't have your documentation in shape and you do get in trouble, it can get very difficult, very fast on how to control or what is actually the problem or what can be kind of fixed when you get in trouble, whether it's from like a weird lawsuit from a lawyer who thinks your protein's too low, which happens all the time, or the FDA comes to get your doors saying like, we think this is wrong. The documentation is pretty important. I also think the organization of these documentation show that you are a professional company who knows their stuff. - Exactly. It's not only the ingredients that are organic, for example, but also the processing that takes place so there's no cross-contamination of organic versus conventional type of ingredients. And all of that goes through a certifying system. And so if you're able to go through that and prove that, then you're allowed to use said logos and are a little bit more official in that context. - Yeah. We'll get to this in the manufacturing part of the series, but or the commercialization part, but I do think like a manufacturer's facility who does their job of documentation and there are certain certifications or manufacturers do this. It tells you they're a really good partner and they know what they're doing. So it's kind of a green flag if these manufacturers and you have their documentation in place. - Definitely. Yeah. And then also to that by extension, not only are these documents important, but also requesting the lead times, the pack sizes, the MOQs on a per pound basis and things of that nature. So let's dive a little bit more into what is MOQ pricing, what's tier pricing, what does that look like? - Yeah, so MOQ means minimum order quantity and it is something I ask all the time because I work with small clients to bigger manufacturers or to bigger food manufacturers and green manufacturers. I ask specifically, what's your MOQ? Well, one, can we get a sample for free to what your MOQ going forward? And there are a lot of ways to talk about it, but in general, a lot of these companies do have a range of MOQs, but MOQs do tell you the size of in the customer care of a company. So those that offer small MOQs generally are smaller ingredient companies and those that offer huge MOQs are generally bigger companies or companies that don't want to deal with smaller players. - Yeah, exactly. MOQs are important for you as the client because this is the volume that you anticipate to buy from the ingredient supplier or distributor and things of that nature. 'Cause essentially they're machines that they have. If it's a large manufacturer, their machines are set up for truckloads of ingredients output. They need a, they create large volume, they need to sell it, otherwise it's just sitting in their warehouse. They're not gonna just pull one 50 pound bag and then ship it out to you. It doesn't make sense economically for them. First of that of a smaller ingredient supplier, their manufacturing line may be actually smaller so they can actually afford to sell a 50 pound back. And in some parts of the industry, if you're in the supplement space, these are all extracts and concentrated type of ingredients where you can get less, it's just gonna be more expensive because of how technical in terms of chemistry is involved to extract that particular botanical or adapt agent or bioactive compound in supplements and things of that nature. So there are different variations. How you can combat this is to find out if, that particular ingredient supplier has a distributor that is helpful in the sense that you're able to work at smaller volumes because this distributor is able to buy at smaller volumes or meet the MLQs and then break that down to whoever is within their network. Furthermore, you can also try to work with a broker. They'll buy from a distributor and now you're working at even smaller volumes. It's just you anticipate markups all the way because there's a little bit more middlemen that's interacting with these ingredients. - So they've seen a broker and a distributor is the size of it, right? - Yes, yes. - Okay, I actually didn't know that. So some of the distributors I work with, like SVI Group, Skidmore and SX, surprisingly they actually cover the whole United States. So SVI does West Coast, Skidmore does Central and then SX does East Coast and I've worked with all those coasts and they're like examples of someone who I can just reach out to the salespeople, ask them for a random sample of things. And they'll send it to me in two weeks. And it's super convenient. It doesn't bug the actual big manufacturer and they are honestly a very really ship-driven. - Definitely. Yeah, that's what you want to look for at the end of the day is regardless of whether it's an ingredient or packaging or labels in these of the nature, it's the relationship that's going to be built 'cause they are stakeholders. Without setting ingredient, they're not gonna have your final product. Without set packaging, it's not a consumer package good that's shelf-sable, et cetera. And without the label, which could be separate from the packaging if it's like being applied to a bottle or a jar, you'll have FDA knocking on your door. - Yeah. There are some tricks also to mitigate MLQ. One trick I specifically use is I call it, we need to have more for a pilot. And what a pilot is, is a simple validation test to make sure your product actually works on the manufacturing line that you have. This works at any scale, honestly. But asking for like, let's say a 50 pound bag of like something which manufacturers generally won't do. If you convince them that we plan to order for a longer time, ask to do it for a pilot and then also keep that relationship pretty positive. These guys understand sampling and these guys understand how food works. They've been doing this for decades. And most of the time, like they are fine with giving larger samples. As long as they understand that this is gonna be a viable business deal and they can research you. They can look up your company, they can look up Google and stuff about how cool your cool CBG brand is. And they will make that rationalization about giving you more. Specifically, if you have a relationship with a distributor, like a very strong business relationship with them, and that you made them money specifically, they will help you no matter what. And I think that that's been my case, is that I can get a lot of great samples and a lot of big samples because a lot of people expect me to essentially make the money at the end of the day. - Yeah, it's essentially if you're looking through the lens of an account manager or a sales manager, this is a development, whatever is more in the sales realm. They're there to play the long game in the food industry. Just because if you're able to grow with the ingredients supplier, they'll see massive returns 'cause it's pretty exponential growth if you do it correctly. They like to work with agencies or consulting firms or consultants in general, especially if that consulting firm has worked with larger type of clients because that provides the volume that they're looking for. And sometimes if it's not a large client, they may give you some slack and give you an opportunity in that sense, as a client in that sense. - Yeah. - Yeah, and then another thing to keep in mind is-- - I want to say one story about kind of like the business ship. I think we both know Aaron Evers from SVI Group. - Yes. - And honestly, the game, my career, I asked their first-one samples, and I think we honestly, the coming out of the time did not do a good job, get our commercializing, or ordering more from them, but we just kept, we were just specifically with SVI Group going and personally I was able to like buy a lot of stuff from them as I kind of grew into my career. So like these are, like in this took like eight years to do. So these are long game type business relationships. - Oh, for sure. - And it's also important to know that if that particular salesperson ever leaves that particular company-- - The type is often. - They can end up in a different facility, or a different realm of ingredients or similar ingredients, and essentially the same type of contacts that they have that can provide them appropriate volumes or new accounts is what gives them more of that commission. And so it's very much a working relationship that needs to be built on not only the individual, but also the supplier too. Because the individual could jump ship, you still need same ingredient from the supplier. So you want to develop two channels of relationships if you will. - Yep, so, and it is a long-term game, and the food industry is so interconnected, and we're gonna say this very often, that you're gonna run into the same people over and over again, with someone saying whether you like it or not. (laughs) Yeah, what's surprising is the food industry is seemingly large, but the more you go to trade shows, the smaller it becomes, because it becomes the similar or same amount of people. They go to research chefs association institute of fruit technologists, packed and stuff. Exactly. There's just a lot of people within the industry that say they're for a pretty long time. Definitely. The talk about incoterms and lead times. Incoterms. Yeah. What are incoterms? Incoterms are essentially, they're always broken down to three letter acronyms. You're going to experience a lot of acronyms here on this particular podcast, but incoterms is related to freight. And so essentially the most common one is freight on board, FOB for short. So that means is within the United States, from where the ingredients supplier is and from where the or two, the contract manufacturing facility, there's some sort of inbound freight cost assumption. So essentially an FOB allows you to understand what is this inbound freight cost going to be. And if you're looking from an import export side of things, you can often also take a look at beyond that spectrum of who controls the liability and figuring out the logistics, whether it's X works, which is essentially the liabilities off you. It's going to be on the the ingredient supplier or the contract manufacturer or the complete opposite, which is the IF where the liability is all on you and you figure out the entirety of the supply chain of how do I move this final product to a port from the port to the inbound freight port within the United States, freight for that to distribute. So if it's like if you're dealing with CIF in incoterms, you as the as a client, as the buyer of said ingredients or or final products would have to manage the logistics from where the finished product is to the port, let's say it's in Taiwan, port of Taiwan from port of Taiwan, ship it all the way over to the port in the United States from the United States port go into a freight forwarding. So you're you're you're forwarding that freight into a warehouse. If not the manufacturing facility that you are looking to to work with, that essentially is all within your control that CIF X works is. It's all on the the strategic partner or the manufacturer that you are looking to work with. FOB is in between what that means is that that ingredients supplier or manufacturer will manage the production and logistics all the way up to the port of the United States and then now it's up to you to figure out from the United States how to manage the logistics to the contract manufacturer of the warehouse. That's the best as I can explain it. There's a lot of different moving parts of where there's control systems in which there's check gates of where the product stops and where the product continues moving on. Where do you want to manage that is is more on to you? And FOB is usually standard within the United States. Yes. And what I usually do is I try to communicate with a broker or someone in charge about the freight cost of how to get from point A to point B. It's easy for them to figure it out and they'll give me something and then I calculate into the total cost of goods, including freight. Because I think that is actually super important to understand because they stick up the on you, right? Especially the type of ingredient you're getting. So one example is dry ingredients are a lot cheaper than frozen ingredients because frozen ingredients have to be in a giant frozen truck and dry of certain miles and every mile is a lot more expensive than frozen than it is on dried ingredients. And there's so many different factors when it comes to that. And dealing with essentially frozen dumplings, you'd only get the retail hurt on frozen shipping, but also the ingredients sometimes can or we have to decide if we want the ingredients to be shipped to be frozen. And we have to make that call. And some of my clients like we're kind of discussing like, okay, is getting frozen worth it. Sometimes it is sometimes it's not because of the mainly the freight. So it's it's a very, very nuanced discussion. It also sneaks up on you. I feel like a lot of manufacturers don't like to talk about freight as a way because it hides a cost. And it's very important for you as a food company to really think about logistics. And this gets a lot more important also on the actual finished good end. It gets extremely important as you scale up and as you deal with more logistical aspects of your company. So not only to deal with the finished goods and of distribution, but you also the deal with the ingredients coming in as well. Yeah, I mean, it is tied intrinsically to lead times. What lead times are is the amount of time it takes to not only wait before the manufactured ingredient or raw material is finished, but how long it takes to ship from one location to another. People don't realize that if you're in the United States, it's a massive country. And not everything is produced in the same state, like not every single state produces every single ingredient possible. So understanding that it can take a longer lead time, especially if it's a novel ingredient to go from say Washington state all the way over to Illinois state for manufacturing, that factors into a lot of things and how long do you wait to schedule a production run. So that you have all your ingredients lined up and ready to go. And how much does that cost in shipping from one state all the way over to another state. Because that's a lot of time and money that's associated with it. It's not only just asking for a refer, which is a refrigerated type of truck, but figuring out if it's a frozen or refrigerated product, how long does a slack and thought, meaning how long does it do you have to wait in the production line to be able to let it thought so you can actually work with said ingredient. Yeah, and I'll give an example to go. I think this is a pretty important example of potatoes. This because this also affects R&D as well, because if you don't have the the writing ingredient is too costly, then you might have to substitute. So for potatoes, for example, or manufacturer for a subo did not want canned potatoes because of metal issues, you know, metal shavings or what or what not. So we had to switch the supplier for that. And when I was at a IFT or a suffigicologist or media's expert was I don't know which one I found a frozen potato supplier like they would IQF or individually quick freeze frozen Q potatoes and shipped them from Idaho. And even though they're like $1 a pound, the shipping was like $4 a pound or something. It was just a ridiculous amount of it was definitely what we calculated out was not worth it for us to go frozen IQF. So we had to look for a different source. And what we did find was a sulfite free or is a mono mono that goes to our dried free dried potato flake that we that I had to take some time to figure out the right you know water ratios and to mimic a canned potato. And it ended up working pretty well. But that's like one example of kind of what can happen if they don't economically work out on a certain ingredient just because of the of if it's frozen or not or canned frozen or canned or dried or not. And to to double up on supply chain in in relationship to R&D sometimes a project can come down the pipeline where it's reformulation work. And the main objective is to reduce the cost of goods sold. And so if we're thinking about you already established the supply chain but it's becoming way too expensive you're looking to scale. Where are other opportunities in cutting down the cost of goods sold. So sometimes is finding would secondary supplier that happens to be closer to the manufacturer workout with this distributor that carries a novel ingredient work in our new application. And essentially we have to figure out does this match the flavor profile does this match the functionality in shelf life results is a match the nutritional we can theoretically say yes because it seems like it's both potatoes or both protein powders. But when you actually get to the granular level it's actually not because it may be a slight difference makes a huge difference at scale. And what you don't want to do is just say it's a one to one substitution when the salts are completely different you do not want to replace a kosher salt. It happens to be larger granules with a smaller salt that's maybe reduced sodium because it's a sea salt. And that minor difference that you may not taste test or think that is a difference. becomes a huge difference at scale because it's not going to hit the golden standard that was established. It's no longer a golden standard. You know, let's talk about crises too, right? Like supply chain crises has happened all the time to the food industry, right? Like I think right now we're in a ginger shortage and now we're trying to figure out how to what can we do about that, right? And you know, one of these, one of the hardest parts about, um, being a food scientist is dealing with shortages, um, where you have to find substitutes and I will put on my climate change hat. Um, it, it is getting a lot more volatile because, um, because farmers can get devastated by natural disasters. Yeah. And let's take a look into the whole cocoa market. Uh, you know, West Africa grows 80 to 90% of the world cocoa. And there's a lot of damage being done from, uh, fungal infections from not enough yields because of lack of rain, things of that nature. So the whole industry is trying to figure out how can you, uh, work through that? Because essentially cost is increasing. Do we look to flavors? Do we look for more added sugars? Do we look to strength? Flation? That's what the large players are doing. The smaller players are trying to figure out where else can we source cocoa? You know, in central and south America, in Southeast Asia, is that a good enough cocoa? Or if they experiment with that? Yeah. Or fund a company that's being cocoa free cocoa, right? Like that, you know, that might take years, right? Um, funny enough, I hear of our Halloween candy. They specifically are, um, increasing gummy sales because of or covered chocolate products rather than pure chocolate products. If I find, uh, I find that really interesting. Exactly. Yeah. It's the whole industry years ago looked at the vanilla crisis and now it's a cocoa crisis. We also have to take a look at geopolitical context, uh, of things too. If we look at importing raw material, let's say it's coming from India, like a lot of spices, if it's going through the usual route, which is to go through the Swiss canal, there's that whole red sea crisis. And you have to circumnavigate now that the, the, was a Cape Horn in Africa, all the way around that adds a lot of more time and that precious time for you to produce is going to start adding costs. And there's a lot of liability because essentially there could be storms to ship these, these container loads of products in wet and some of them may fly over the ship because it's a huge storm. Yeah. Now our losses in in cargo and that's just naturally happens because what can you do? That's what there's where the insurance comes in. So we have to factor that in into the R&D process. That's more for larger scale type of products, but it also affects microeconomics in terms of those large scale issues, trickles down into what increases in pricing there is per pound or per unit of your final finished good product. Yeah. I have another story about that especially the trickle down sunflower oil is a really interesting example because a lot of is producing Ukraine. Ukraine. And there was a point where we were trying to get sunflower oil and they said like, Oh, a buffer bomb. There's sunflower oil plant and we can't get anymore sunflower oil. And right, you know, it can be that instant, right? The same with with less than right. Like a lot of less than is coming from sunflower derivative. So it's not just a singular ingredient, but what has been produced from set ingredient raw material. And the same could be said with let's let's talk about dates, for example. Oh, there's a lot of conflicts happening between Israel, Gaza, Lebanon, Middle East in general. And the Middle East grows a lot of different varieties of dates. So people who are maybe used to importing different varieties like Ishua dates, for example, like a premium type of date that has like a chocolatey and very sweet flavor profile. They're now having to think about, well, how can we replicate that? Because essentially in the United States, most of the dates grown is our midjule. Those are massive dates. Is it the same flavor profile? No. Is it something that they have readily available? Yes. How do you translate something that is what they're used to? And Ishua date, for example. And make sure that they have a similar flavor profile using midjule dates. Is that even feasible? And that's where we come in and say, well, we have to do experiments and see how we can work something out. I actually didn't know that. I thought everyone used midjule dates, but that's just how much I think that's cool. Okay. I mean, there's the glutinuar is also the second date that's grown not in large volume, but everything else is imported. And so if we're looking into more premium type of dates that could be used for fillings and things of that nature, just Ian as is, then that's where I start to become more complicated. That's okay. That was just more of a Middle Eastern client. Is it the whole trade issue and bombic issues? It's like, well, why are we going to do that? It's always great to learn new things. So, just raw material. I think my biggest lack of knowledge I have is agricultural crops. I always find it so fascinating how that works. Yeah. It takes a long time. I think it's a good ending point for this jam pack episode about the exciting world of raw materials. Anything else add? I think just to summarize, if you're to look into what you buy, there's a lot more details that are missing out. So what you want is to best ask the food science consultant or the procurement person, how they can help you make a decision based off the ingredients that you decide to choose to work with. I think the best way is really to have not only a primary supplier, but a secondary backup in the case that there is some sort of issue through force measure. And that could be anything. You know, a merger and acquisition could happen and that particular ingredient supplier as a manufacturer shuts down or there's a fire or an earthquake or hurricane. And now you have a loss of that manufacturing capability. So how do you rectify that particular type of supply chain risk? And another thing would be if you're importing because not every single ingredient is made or grown in the United States. Some of it has to be imported. How do you figure that out? There was a whole strike across two thirds of the United States coast from East Coast all the way to the Gulf of Mexico. How do you rectify those type of issues? Because you do anticipate either not producing a product or increasing your final cost of goods sold there by having to lose profit margins or having to increase your MSRP. And that's where we all come in to help you out in that sense. Yeah, and I'll say most people do this at the last minute. I suppose everyone cries and happens to know where it's natural human instinct to do these things the last minute. But we're here for you. We're here for you to pick that up. Elbe everyone has a great rest of their week tuning for the next episode where we talk about finances and cogs. In my opinion, it's numbers numbers numbers. Yes. And it ties into everything that we've done so far because at the end of the day, we're here to make a viable commercially business model. Success. More say viable business model. Commercial viable business model. Yes. All right. Okay. Take care everyone. Bye. Take care. And we're both two independent food consultants who've been through the food industry for over a decade. And we're here to share with you how we make good food products that have been sold in thousands of Let me rephrase that, I don't know why I'm struggling with this.