Many of us are familiar with the term ‘contract manufacturing’, but fewer people seem to have heard about toll manufacturing. But exactly what is toll manufacturing and what are the benefits for companies that choose this option?
Toll manufacturing is a type of contract manufacturing arrangement in which a client company pays a fee to access a subcontractor’s facilities and expertise. The client company supplies raw materials to the subcontractor (also known as a ‘tolling company’), who then manufactures and/or assembles the goods on their behalf.
Continue reading to learn more about toll manufacturing, its advantages, and how to find the right toll manufacturer for your needs.
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Definition of toll manufacturing
Toll manufacturing is when a client company provides raw materials or part-finished products to a third-party subcontractor, who then uses their facilities and knowledge to manufacture the client’s goods to the agreed specifications. As the client company, you’ll pay a fee – or toll – for this service (hence the term ‘toll manufacturing’).
Although similar, toll manufacturing differs from a typical contract manufacturing agreement. In the latter, the subcontractor handles all aspects of the manufacturing process, including choosing and supplying the raw materials.
While both arrangements have their benefits, toll manufacturing is often favoured by client companies who have better access to raw materials and want more control over key aspects of production such as price and quality.
What’s the toll manufacturing process?
When you hire a toll manufacturing company, you’ll source and supply the raw materials required to make the product and they’ll handle the production.
In some cases, the client company provides ready-made components that only need to be assembled and packaged by the subcontracting company. At ReAgent, for example, we provide a high quality chemical repacking service for businesses from a variety of industries.
Toll manufacturing is particularly common in the electronic product manufacturing industry. For instance, tech giant Apple uses a Taiwan-based electronics manufacturing company called Foxconn to manufacture its products. Components are prefabricated and later assembled.
Of course, before any production begins, the client company and the subcontractor will need to agree on a fee and draw up a detailed toll manufacturing agreement. To protect the interests of the client, both parties may also enter into a confidentiality agreement.
3 benefits of toll manufacturing
Depending on your business’s particular circumstances, toll manufacturing can have several advantages. As well as being highly cost-effective, it can give you more control over the production process and the flexibility to scale up your operations with minimal risk.
1. Cost efficiency
Toll manufacturing allows you to exercise greater control over the price of the raw materials or semi-finished components. This can often be more cost-efficient because you aren’t reliant on the buying decisions of the tolling company. It also means you’ll have more influence over the quality of the input materials and the finished product.
2. Access to specialised expertise and equipment
Using a toll manufacturing company will give you access to specialist expertise and years of industry experience. Whether you’re a start-up or a well-established company, this can be a huge advantage.
For example, a good toll manufacturer may have the technical knowledge and insight to help you improve your product. Plus, you’ll save on labour costs as you won’t have to recruit and employ highly-skilled workers.
Partnering with a toll manufacturing company also means you’ll benefit from specialist, state-of-the-art machinery and equipment without having to invest large amounts of capital. This can save you money and mitigate risk without compromising quality (providing, of course, your raw materials are of a high standard too).
3. Flexibility and scalability
Unlike investing in fixed assets like factory buildings and expensive equipment, hiring a toll manufacturer offers more flexibility and scalability. You can quickly and easily increase production to accommodate increased market demand, plus you’ll be able to produce new designs without having to retrofit your existing equipment.
If you’ve got a good relationship with your toll manufacturer, they might even offer competitive pricing if or when the time comes to scale up production.
How to select a toll manufacturer
While toll manufacturing has many benefits, it’s still important to choose the right company for your needs. This usually requires a lot of research, time and patience but your due diligence will pay off in the long run.
Of course, cost is a primary consideration, but there are also other important factors to consider when selecting a toll manufacturer. These include the following:
- Equipment and technology – you’ll need to ensure the manufacturer’s facilities and technology meet or surpass the required standard. They must be capable of consistently manufacturing your products to the required quality.
- Quality control – to reduce the risk of problems later on, check if the subcontractor complies with relevant industry and international standards such as ISO regulations. As part of their quality control process, batches of products should be reviewed and tested regularly. At ReAgent, we have stringent quality control practices in place and we’re proud to hold four prestigious ISO accreditations.
- Safety protocols – any reputable toll manufacturer will take measures to mitigate property damage, minimise hazards, and prevent injuries or fatalities in the workplace. Their safety protocols must be clearly stated in the employee manual and all staff must be properly trained.
- Environmental and other legal compliance requirements – depending on the nature of your business, there may be specific environmental and other legal requirements to consider. Before hiring a toll manufacturer, always check they’re in compliance with their legal obligations.
- Production capacity – just because a subcontractor has the equipment, expertise, and technology to manufacture your product, it doesn’t necessarily mean they can produce the quantities you need. Make sure they can fulfil your requirements and get guarantees in writing before signing on the dotted line.
- Scalability – look for toll manufacturers who have the resources and capacity to help you scale up if or when the time comes. Otherwise, you may find yourself having to source another production partner sooner than you think.
- Responsiveness – this includes the turnaround time for deliverables and the company’s capability to correct mistakes. A responsive toll manufacturer should also be flexible enough to change their output capacity and designs if given reasonable notice.
What are the benefits of partnering with reputable manufacturers?
Partnering with a reputable manufacturer is a great way to fulfil your manufacturing needs while ensuring your customers receive the best possible product and service.
Taking the time to find trusted subcontractors also reduces the risk of potential headaches, delays and even reputational damage further down the line. A reputable manufacturer can even help you to improve your company’s reputation and gain an edge over the competition.
Conclusion
Toll manufacturing can be a great option for many companies, particularly those that already have access to competitively priced raw materials. It allows you to fulfil your manufacturing needs and produce high-quality goods without having to risk large amounts of capital. However, as with any subcontracting arrangement, it’s important to do your homework to find the best tolling company for your business.
