Special edition: Outsourcing

The ins and outs: Are firms shifting to vertically integrated supply chains?

By Annie Harrison-Dunn

- Last updated on GMT

Related tags Supply chain

Outsourcing. It's no secret it can bring big financial and logistical gains. But in an age when traceability and accountability carry increasing value, are we now seeing a shift towards a new concept of insourcing?

Jeff Hilton, partner and co-founder of healthy lifestyle branding agency BrandHive, said this was something "smart manufacturers"​ were looking to do and what consumers were looking for.

Speaking with NutraIngredients at Vitafoods Europe in Geneva, Hilton said firms wanted increasing control over their supply chains to reduce risk and protect against commodity shortages.

"Increasingly we see manufacturers and suppliers who are vertically integrating and developing their own source of raw material."

This sat against the background of the New York Attorney General's crisis which brought new focus to the issue of botanical adulteration and sourcing transparency.

He said insourcing, or vertical integration, was a "compelling story" ​with inherent appeal for consumers generally and more specifically for so-called millennials who demanded more information and accountability from brands. This was something Hilton believed they were willing to pay extra for.

"Being able to tell a proprietary sourcing story can be very powerful and persuasive to B2B customers,"​ he told us off camera.

Field to factory expertise

This was an idea echoed by Patrick Coppens, director of regulatory and scientific affairs at the trade group Food Supplements Europe (FSE).

He said this was especially relevant for herbal ingredients where the conditions at the agriculture and processing stage could impact the quality of the final product.

But what might be holding companies back from taking this vertically integrated leap?

Coppens said this depended on the capabilities of the company. Often outsourcing was done to harness the skills or expertise of the other party. Insourcing would mean companies would have to be experts from field to factory.

It would also mean that, should there be an issue with the final product, all heat would be directed towards the one company.

For Hilton though this was worth the risk. "Certainly there is increased liability with insourcing, but for most manufacturers and suppliers it is increasingly seen as the transparent and responsible thing to do."

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