Toll Processing 101: What You Need To Know
Justin Klinger, Jul 29, 2021 8:30:00 AM
Many trusted companies are discovering the most cost-efficient way to manufacture their product is to outsource a portion of their materials processing to another trusted company. When they do, they look for a partner that has all the right critical resources in place — specialized equipment, dedicated facilities, and manpower … the toll processor.
Even more important, a toll manufacturer has experience in processing many materials for a diverse base of companies, often across numerous industries. That expertise can provide the process know-how, insight into challenges, and even formulation advice to reach the exact physical and chemical composition needed.
What is Toll Processing?
When a manufacturer is evaluating potential contract manufacturing and/or toll processing partners, it’s important to understand the differences. These are two ways a third party can manufacture whole products or ingredients, or complete critical processes such as milling, blending, liquid bottling, final product packaging, and more.
How does toll processing work in the context of a manufacturer’s production process? The graphic below illustrates the basics. In short, a manufacturer procures and owns the materials involved, and pays a toll manufacturer for the production services provided. Toll processing is defined as performing the steps to process materials to customer specifications, for payment.
This differs from other contract manufacturer arrangements, in which the contract manufacturer may source and purchase materials, then manufacture or process to specification. This page covers the differences in depth.
This is a helpful big-picture view, but how does the toll processor relationship translate into an advantage in the marketplace? Let’s briefly review a few ways that toll processing helps companies thrive and provide value every day.
Top Business-Boosting Advantages of Toll Processing
Capital Investment Savings — Everyone loves to save money. Using toll processing, a company doesn’t have to invest in specialized equipment, extra labor, or production lines within the manufacturing facility; the toll processor has all of these resources ready to go. And in some cases, a tolling partner may be willing to acquire the equipment, if they don’t already have it.
Raw Material Handling — Depending on the process, a toll processor can buy and store raw materials, simplifying everything and saving money on transportation. Or, the toll processor can receive materials from the originating source to control the quality of the raw materials and potentially trim timelines and improve efficiency.
Customization — Many toll processors offer customized formats, product formulation, and packaging possibilities. When a company can’t invest the time and money to produce a specific product, customization is a welcome option.
Logistics — A full-service toll processor can coordinate onsite storage, offsite warehousing, and even delivery to the product’s final destination. This eliminates the stress of managing warehousing and coordinating delivery, and can save time and transportation costs.
Flat Fee — Often a toll processor’s cost of labor and packaging is a flat fee. So, even if a project’s yield is higher than expected, the cost doesn’t change. This toll processing flat fee is another money-saving function for companies.
Increased Efficiency — Production costs and manufacturing challenges are taken off the contracting company’s plate as the toll processor uses its own specialized equipment and employees. Subcontracting work is what they do, and their focus on efficiency is built-in.
Space Savings — Production facilities and the vast footprints of empty storage spaces are expensive to maintain. What are the results when a company simply ships raw goods to a toll processor? Fewer headaches and money saved by reducing the need for leases on large warehouse spaces.
Reduced Labor Costs — Hiring skilled manufacturing workers is costly and difficult during ongoing labor shortages. When a company outsources to a toll processor, they work with a team of material experts and qualified equipment operators, and can spend their own time and efforts focusing on other critical business needs.
Consistent Quality — Regardless of the toll processing service (size reduction, contract drying, extrusion, extraction, blending, liquid bottling, etc.), the company controls the ingredients used. That means they can exercise their own purchasing power while maintaining watch over ingredient quality.
Production Expediency — Companies that use chemicals in their production process aren’t always tooled, certified, or permitted for in-house chemical production. But contract chemical toll manufacturing companies are, so they can handle strict production schedules and larger volumes. Chemical tolling can shift whole processing steps to a trusted expert.
Flexibility — Contract manufacturing and toll processing both add flexibility during any stage of production. For example, within product development, a company can contract a toll processor to begin full-scale production of a new product while that company builds its own production-scale facility.
On-Demand Capabilities — Using a third-party for specific services allows companies to avoid investing in additional equipment, facilities, and employees. So, they receive specialty services when they need them and save time and money by not paying for what they don’t use. The on-demand service model is ideal for seasonal projects and product testing.
Specialty Certifications & Permits — Companies that need specialized capabilities like cGMP-certified processing for food and pharmaceuticals can look to toll processors who have those certifications already in place. Trusting a GMP-certified toll processor not only saves time and money, but it guarantees quality standards and processes are already in place.
Selecting a Custom Toll Processing Company
Like choosing a vacation spot, the cheapest option may not automatically be the best. Nor is the closest, necessarily. And selecting on reputation alone can leave out important aspects of the decision.
Remember, the toll processor you choose could well be the final guardian between your product and your customer; they’re really your new partner in quality. It’s vital that you review quality assurance and quality control procedures. Potential for problems in the process — contamination, off-spec material, overweight, underweight, late shipments — is already high, whether performed by an outsourced vendor or in-house. The ability to trace your product from arrival through departure is really standard procedure for any worthy toll processor.
Take the time to visit a toll processing plant. You’ll see the environment your product will be exposed to and how it will be processed. If a feasibility test is required, have ready specifications on particle size, average size, moisture content, bulk density, and temperature requirements to speed up the testing procedure.
All testing and inspection aside, will this toll processor reduce your risk, enhance your position against your competition, boost your bottom line, and lessen headaches? That’s the kind of toll processor you want on your side.
You’re good at what you do. But, you’re not good at everything. With some diligent research, you can find the outsource partner that gives you an edge.
So now that you’re clear on the advantages of working with a toll processor, you’ll likely benefit from a deeper explanation of the differences between toll manufacturing and contract manufacturing. While both fall under the outsourcing umbrella, the distinctions are important.
Understand how a toll processor delivers specialized material expertise along with the quality assurance and process controls you need, from start to finish. Get our downloadable, sharable guide, What Are the Differences Between Toll Manufacturing and Contract Manufacturing? Just click the link below to download your own copy.