Factory-Direct Ingredient Buying Still Ensures Quality, Firm Says

Can factory-direct ingredient e-commerce survive in a time of increased quality-control scrutiny for dietary supplements?

Last year, IngredientsOnline.com introduced itself as a U.S.-based e-commerce website through which manufacturers can purchase raw ingredients from suppliers around the world. The company’s premise is that the online, factory-direct method of buying and selling eliminates the middleman (ingredient brokers, importers, distributors), saving companies both time and money. But, in the current climate of heavy scrutiny of the dietary supplements industry, especially in the United States, some may wonder whether purchasing factory-direct can still ensure ingredient integrity and bar against adulteration.

The company says that it can. For one thing, says Roberto Bustamante, director of marketing, IngredientsOnline.com, the company maintains numerous checkpoints during which suppliers and their ingredients are vetted for quality.

To start, as most of its current sellers are based in China, IngredientsOnline.com staff based on the ground in China will visit and audit each supplier factory. “We conduct a factory audit, which begins with the physical inspection of the plant, onsite interviews, and includes documentation of business licenses (GMP, ISO 9001, ISO 22000, HACCP, halal) and other certifications, and adherence to USP–NF monographs and Food Chemical Codex, among other requirements. It also includes the physical inspection of products to be purchased through IngredientsOnline.com and the taking of samples for analysis by the IngredientsOnline.com QA/QC team,” the company says. Before approving a new factory’s participation on the site, the company says it also checks the factory’s credit and financial assets, working conditions, and environmental-protection standards.

At the company’s Shanghai laboratory, IngredientsOnline.com staff tests samples of “every lot” of raw materials using near-infrared spectroscopy analysis and microbial analysis, Bustamante says. Once they become active sellers on the site, factories ship raw materials to IngredientsOnline.com’s warehouses in La Mirada, CA, and New Jersey, ensuring that there is always enough stock in house ready to ship to purchasers, the firm says. At these U.S. sites, IngredientsOnline.com’s staff also tests some samples for quality and also sends samples to third-party labs.

“If we find ingredients that are not meeting expectations…then those factories are flagged,” Bustamante says. Once flagged, a factory is told what it needs to fix in terms of quality control. After that, IngredientsOnline.com monitors the factory closely; if compliance isn’t met, he says, the factory is removed from the platform.

This “triple-check” in place, as the company calls it, provides the necessary quality control. That doesn’t mean manufacturers, once receiving materials, don’t need to perform their usual Good Manufacturing Practices of ingredient identification, quality control, and testing, the company points out; however, the testing IngredientsOnline.com does prior gives manufacturers additional “peace of mind,” Bustamante says. “They know that even when they purchase from us, that even though they have to do that check, they know it’s going to come out clean, it’s going to come out consistent, it’s going to come out as quality, because they know what we’re already doing on the back end of it.”

“We’re helping them along, hopefully saving them time, but there are no shortcuts,” adds Peggy Jackson, vice president of sales and marketing, IngredientsOnline.com. “They still have to do everything they have been ordered to do. We’re just making it more efficient for them.”

 

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The benefits of the site-primarily cost savings, convenience, better transparency of inventory, and the ability to closely track shipments-are major benefits to supplement manufacturers, the firm says.

“Ordering high-quality nutritional raw materials from global factories wasn’t always easy,” said Sherry Wang, CEO of IngredientsOnline.com, in a February press release. (Wang is also founder and president of ingredients supplier Green Wave Ingredients (La Mirada, CA), of which IngredientsOnline.com is an offshoot.) “Historically, the process was time-consuming, saddled with middlemen brokers and importer fees, rife with shipping delays and product-availability concerns. In addition, product quality was obscured behind international barriers that were difficult to maneuver.”

Bustamante highlights some of the ways in which IngredientsOnline.com dissolves those obstacles. First, prices may be lower because, as mentioned, there are no brokers to deal with. (IngredientsOnline.com says it does not dip into the profits of what factories sell, but it does earn a service fee from purchasers on each transaction.) Additionally, the company may set a tier-pricing structure; the more users purchase, the lower the prices.

Factories also see a benefit because they are able to set their own ingredient prices. The factories, says Wang, “are the ones who own the merchandise, they are the ones who decide the pricing. Of course, we give them lots of sales data and local market information so they can make better decisions of what the best price to sell at is.” Manufacturers can then choose which factories they want to buy from.

“Factories love this type of concept because [otherwise] they never know what their selling price is in the United States,” she adds. “They’re basically walking in the dark. As soon as the distributor takes their ingredients, they don’t know what’s going on. So now they’re able to see the movement of the transactions on this platform. They say, ‘Wow, I have seven people who ordered my ingredients today.’” Additionally, the company says, this pricing structure levels the playing field, because every company is charged the same ingredient price.

In-stock supply is also a benefit. IngredientsOnline.com says it maintains a set level of popular raw ingredients in its U.S. warehouses to ensure the ingredients are always in supply, to cut lead time for purchasers; moreover; purchasers can see directly on the website how much of an ingredient is currently in stock. When ordering overseas ingredients traditionally, manufacturers are often left wondering, “When is this going to come from wherever I’m ordering, how long is the freight going to take, and how is that going to affect my production date?” Bustamante says.

Bustamante says the company currently has more than 300 ingredients on its U.S. shelves and that it plans to have more than 1000 by the end of the year. “We set up a safety stock [with factories] to make sure that once they’re below the safety stock, they get an alert,” Wang says. “We maintain certain ingredients always in the U.S. warehouse.”

The site also gives customers 24/7 access as well as all of a factory’s updated spec sheets and certification documentation available directly online in downloadable PDFs, saving purchasers the time spent collecting all of those documents themselves. And, if customers choose to involve IngredientsOnline.com, the company’s personnel are available 24/7 via a chat function and will also set up face-to-face meetings between ingredients buyers and sellers if such a meeting is requested.

Currently, IngredientsOnline.com has registered approximately 2,000 users and 45 factories, the company says. It’s selling ingredients for everything from dietary supplements and food and beverages to cosmetics, pet products, and pharmaceuticals. Wang estimates the site is doing an average $3 million worth of transactions per month.

When asked if an e-commerce marketplace is a hard sell as dietary supplements and their ingredients are under increased quality-control pressures, Wang says: “I think it doesn’t matter whether you’re selling online or offline. Quality is always the issue.” She points to the quality-control parameters IngredientsOnline.com has in place, and says, “We’re confident we’re selling quality ingredients online.”

 

Jennifer Grebow
Editor-in-Chief
Nutritional Outlook magazine
jennifer.grebow@ubm.com