When two ingredients do the same job, the natural comparison is price per kilo. It is the number on the quotation and it is easy to compare. It is also incomplete. Nobody buys a speciality ingredient for its own sake; they buy what it does in a finished product, and that cost depends on how much is needed and what happens along the way.
The basic calculation
Cost in use expresses an ingredient's cost per unit of finished product. For every 1,000 kg of product:
Ingredient cost = price per kg × dose (%) × 10
The dose is the critical input, and it should come from a trial in your own product rather than from a datasheet range.
A worked example
The figures below are illustrative, chosen to be easy to follow. Two offers deliver the same stabilising function:
| Per 1,000 kg of finished product | Offer A | Offer B |
|---|---|---|
| Price per kg | ₹400 | ₹320 |
| Dose established in trial | 0.50% | 0.70% |
| Ingredient needed | 5.0 kg | 7.0 kg |
| Ingredient cost | ₹2,000 | ₹2,240 |
Offer B is 20% cheaper per kilo. At its higher dose, it costs 12% more per tonne of product before anything else is counted.
Adding what happens in production
Now suppose the trials also showed a difference in product lost to rework or rejection, and that the finished product carries a material cost of ₹60 per kg. Again, these figures are illustrative.
| Per 1,000 kg of finished product | Offer A | Offer B |
|---|---|---|
| Ingredient cost | ₹2,000 | ₹2,240 |
| Product lost to rework or rejection | 1.0% | 1.5% |
| Value of lost product at ₹60 per kg | ₹600 | ₹900 |
| Cost in use | ₹2,600 | ₹3,140 |
On this basis Offer B, 20% cheaper per kilo, costs about 21% more in use. The quotation pointed one way and the product pointed the other.
Other costs worth counting
- Consistency. An ingredient that varies from lot to lot often ends up dosed above what the trial needed, to cover the weaker lots. That buffer is a real cost.
- Pack size and shelf life. A pack larger than a production run uses, or a short shelf life, can mean part of each pack is written off.
- Handling. Longer hydration, extra mixing or a separate pre-blend step all cost time on the line.
- Freight and terms. Delivery charges, payment terms and the stock you must hold all belong in the comparison.
- Support. The cost of a failed launch or a stopped line outweighs most differences in price per kilo.
A fair comparison in five steps
- Establish the dose of each option in your own product, against the same target.
- Convert each to ingredient cost per 1,000 kg of finished product.
- Add measured differences in losses, rework and processing time.
- Add freight, pack size, shelf-life and finance effects.
- Compare on total cost in use, and record the assumptions so the comparison can be repeated when prices change.