Sourcing Criteria for the Confectionery Industry

Written by Wang Le, DPSM

by Wang Le, DPSM

Strategic sourcing skills play an important role before any purchase are made in every industry. It includes analyzing high-volume purchases and developing long-term partnerships with a picked group of suppliers, which can provide quality products and services at low costs.

Bakery
Picture taken from https://www.tripadvisor.com/LocationPhotoDirectLink-g1055128-d7992010-i288826364-The_Bakery_Delicatessen_Ltd-Woodhall_Spa_Lincolnshire_England.html

In the confectionery industry, procurements involved various suppliers. We must be cautious of the cost and income from the end-products. In this industry, we need multiple ingredients and food products from a different source will not be sufficient to fill the requirements. If we manage them orderly as mentioned this will give a significant bottom line of the end-product with a standard quality. In the process of procurement, sourcing is about getting the perfect balance between the quality of raw materials and affordability. Successful sourcing will make the procurement process more efficient and streamlined. Therefore, it is vital to retain sourcing criteria for the confectionery industry. The diagram below shows the six key sourcing criteria for the confectionery industry.

Sourcing Criteria
Diagram created by Wang Le (2020)

Quality and Food Safety

The most important criteria for sourcing in the confectionery industry is material’s quality and food safety. We also must abide to the food industries regulations and to be cautious with the food suppliers on material’s quality and food safety. To have both balance of remarkable quality and income. However there are still few suppliers sell poor quality or unsafe material to make more money, we need to be more careful and responsible in sourcing.

Before sourcing, we need identify what exactly we want to buy and why, what the quality level is. Following the Standard Purchase Specification (SPS) which is determined by the Procurement Manager or the Executive Chef of Kitchen. The quality to be purchased need to be in line with the SPS regulation of the brand or grade.

For sourcing for paper or plastic packaging, we should choose the certificated packaging which has been approved for direct food contact or food-grade use. Inadequate quality packaging will also affect food quality and food safety. We more, should select biodegradable plastic bag to help solve the problem of plastic waste and protect environment. Therefore, it is crucial to retain the standard of all materials’ quality and food safety; your customers want quality and food safety, too!

For example: Material of sulphur fumigated Gouqi has nicer looking and sour taste with a pungent smell, but it is not good to health. If we take some cakes or bread made this kind of Gouqi for a long time, it may cause cancer.

A tray of food

Description automatically generated
Left: original Gouqi Right: Sulphur fumigated Gouqi
Picture taken from http://yikangde.com/html/39.html

Cost

The unit price of the item is not the only criterion in the sourcing stage; the total cost of ownership is a key factor. The total cost of ownership involves the unit price of the goods, ordering and carrying cost, payment terms and cash discount, logistics and warehouse costs, maintenance costs, and other more qualitative costs that may be a bit tough to determine.

Food on Table
Picture taken from http://hollandi.com/food-bakery/images/bakery-supplies/bread.jpg

At the same time, we also need to check the total cost of material match its price range and company finance budget or not. The too-high product cost will be not easy for the company to make more profit, but too cheap material will make the resulting product is in low quality and taste, customers know it when they try the product. So cost is an essential criterion in sourcing.

Supplier’s Reliability and Service

Reliability means the quality level of the supplier can be trustworthy and dependable established from the references (buyers’ comment), financial stability (capital, annual turnover), past and current partners’ feedback, firm organization, and personnel cultural consciousness. It is not only about product quality reliability, but supplier’s characteristics such as delivery lead time also need to be considered carefully. If not, production may have to be stopped because of the shortage of material.

Lead time
Picture taken from https://www.cgnglobal.com/blog/node/710

The supplier’ responsibility is to arrange accurate delivery(right product, right amount, right place, and right time) when the business requires. A lot of companies adopt to “Just-in-Time” (JIT) Inventory process to decrease the cost of ‘’waste” in the confectionery industry. As it can short of lead time on the logistic aspect and it will help to reduce costs in minimum stock. Materials will be delivered when they are on-demand and used immediately. The risk and expense of running out of stock will be diminished, while the appointed suppliers can provide needed.

Supplier’s Capacity and Certification

The supplier has got the capacity to fill orders to meet requirements, and the ability to fill large orders if necessary, this is another important criterion for sourcing.For the confectionery industry, there are many raw materials or food suppliers, make sure they basically have ISO 9000 (22000), HACCP or Halal certificate by FDA (SFDA). This ensures that they are not only using high quality materials, but also all the processes including product operation (SOP), packaging, warehouse management and logistics are done well. All these results to provide a high-quality and safe product.

Supplier’s employee capability is another important criterion in sourcing. When we are sourcing some new items, the first people who we meet up or call is the salesmen or customer service staff, good attitude, professional knowledge, and effective communication will have a higher chance to start a co-operation. A good company that has excellent capable employees can create a higher quality of products and better services to rise market share and build customers confidence.

Supervisor Ware house
Picture taken from https://footage.framepool.com/en/shot/947997831-checklist-logistic-centre-supervisor-warehouse

Supplier’s Financial Stability

Financial stability has become a critical criterion in the sourcing strategy. It is indispensable to perform an economic analysis of suppliers at an early stage of sourcing. Starting a contract with a supplier whose financial condition is unstable, may result in issues such as a decline in service levels, disrupting their supply, or lower quality of the product if the company must decrease costs to make profit or survive. Or worse the business could go bankrupt. Whether the supplier can be given credit term for future cooperation and how long can it be given are also essential elements.

Supplier’s Location

Geographical location is important in sourcing for the confectionery industry because it will impact delivery lead time, transportation, storage cost and logistics costs. Customers buying items from oversea are changing on the direction for local products, especially for F&B. People prefer to support local shops as they like fresher and healthier food. As a confectionery company which caters to a local clientele, you can really capitalize on the growing desire for locally sourced and sold products.

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Sourcing products locally is also an essential step towards sustainable business practices. Sustainable business depends on balancing sales with the ability to keep going growth. While talking about sustainability, we should know the Three P’s: Planet, People, Profit. When we make decisions about company, it is important to keep these P’s in mind that will help us minimize our environmental impact, make our customers and community happy, and make more profit.

Conclusion

An identification of sourcing criteria with the right sourcing methods are the driving actors to determine a company’s growth and competitiveness; thus, these six criteria are particularly important in the sourcing stage for the confectionery industry. However, as companies have learned that the sole emphasis on these six criteria for sourcing is not enough, we also need to consider a more comprehensive multi-criteria approach like risk factor, technology and capability management and product development etc.


References

Chit Ngu Wah Christina, DPSM. (2020). “Essential Criteria to Evaluate Construction Supplier”. Retrieved from SIPMM: https://sipmm.edu.sg/essential-criteria-evaluate-construction-supplier/accessed 20/06/2020.

David Wong, DPSM. (2018). “Supplier-Managed Inventory for Central Kitchen Operation”. Retrieved from SIPMM: https://sipmm.edu.sg/supplier-managed-inventory-central-kitchen-operation/, accessed 27/06/2020.

Food & Beverage Service, (2018). “Purchasing Control”. Retrieved from http://ihmkolkatafoodandbeveragenotes.blogspot.com/2018/04/purchasing-control.html, accessed 27/06/2020.

Linda Zhang, DPSM. (2020). “Essential factors successful supplier selection”. Retrieved from SIPMM:https://sipmm.edu.sg/essential-factors-successful-supplier-selection/, accessed 27/06/2020.

Ng Shi Yun, PDPM. (2018). “5 Key Criteria for Supplier Evaluation in the Construction Sector”. Retrieved from SIPMM:https://sipmm.edu.sg/5-key-criteria-supplier-evaluation-construction-sector/, accessed 27/06/2020.

Opportunity Fund, (2020). “The Importance of Sourcing Locally”. Retrieved from https://www.opportunityfund.org/the-importance-of-sourcing-locally/accessed 28/06/2020.

Oxford, (2020). “Sourcing in Procurement and Supply: What to Look for When Appraising A Supplier’s Financial Position”. Retrieved from https://www.oxfordcollegeofprocurementandsupply.com/sourcing-in-procurement-and-supply-what-to-look-for-when-appraising-a-suppliers-financial-position/accessed 28/06/2020.

Rob Biedron. (2018). “What’s the difference between procurement & sourcing”. Retrieved from https://www.purchasecontrol.com/blog/procurement-and-strategic-sourcing/, accessed 28/06/2020.

SpendEdge, (2020). “How to better manage procurement in the food and beverage industry”. Retrieved from https://www.spendedge.com/blogs/better-manage-procurement-food-beverage-industry, accessed 20/06/2020.

About the Author: Wang Le has substantive years of managing experience in the field of procurement, specifically in the confectionery Industry. She holds the Certificate in Purchasing Management and is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Wang Le completed the Diploma in Procurement and Supply Management (DPSM) on June 2020 at SIPMM Institute.

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