Toll Manufacturing - Is it right for me?

You have a product.

You've spent time and resources developing it.

You have your supply chain mapped out for all materials.

You may have been producing it for years or perhaps you're planning to launch it to the market.

So why would you consider Toll Manufacturing?

First off, let's look at the case where you've been manufacturing a product for years.

The cost of manufacturing in-house is creeping up. Your plant is ageing and needs investment or replacement. The product has hit maturity but there's still a few years of reducing demand to manage.

It's perfectly sensible to consider completely outsourcing the manufacture of a product to save on unit costs and remove the need for investment in overhaul or replacement of your ageing plant. However, this is not without risk.

In outsourcing completely the manufacture of a product, you'll potentially be sharing all of your intellectual property. The material formulation, the suppliers of the raw materials, the manufacturing process. Production drawings, tooling and manufacturing knowhow. That's a lot to share and a lot of potential risk to your business, albeit for a product in declining demand.

That's not to say that with the right partner or product this is a bad option. There's little new in the world of commodity items such as an aluminium drinks can or a pencil. So if there's little or no IP to protect, then it can be a purely commercial decision and a means of reducing unit costs and avoiding the need for costly investment.

However, where there is IP to protect or you simply are not comfortable sharing all there is to know about the manufacture of your product, then Toll Manufacturing is a great option.

You control your material suppliers, you control the quality and retain responsibility for material testing, accreditation and certification. You buy the material(s) and ownership remains with you. The only element of control you surrender is the manufacture.

That can in itself be a risk, but as long as there is a Toll Agreement in place and you don't unwittingly surrender confidential information regarding your supply chain, end use, end customers etc. you still retain the majority of the knowhow thus making it difficult for a third-party to copy your product.

Once over the barrier of surrendering control and some manufacturing knowhow, there are several advantages to Toll Manufacturing.

• No need to invest in new or replacement plant
• Lower staffing costs
• Reduced storage costs
• Less inventory management cost
• Flat fee production costs

For products that are in the early stages of their lifecycle, Toll Manufacturing can be a great way to get you product to market in a much shorter time frame. If you have developed your product, then getting it to market can be much quicker with a specialist Toll Manufacturer. With all the necessary plant and machinery available from the outset, your product could be hitting the market within weeks. Even if you have funding in place for capital investment, sourcing and commissioning plant, recruitment, training and warehousing, this can take months or years to get up and running.

However, Toll Manufacturing is a great way to get your product to market swiftly, without the need for costly investment in capital equipment, recruitment and training of the workforce and in many cases finding a location to house your plant and people.

Toll Manufacturing is not without its downside. There is always an inherent risk that you surrender more intellectual property than you are comfortable with. Also, it is worth noting that your highest priority is not necessarily your Toll Manufacturer's highest priority. So it would come as no surprise that a Toll Manufacture may prioritise a ￡10k/day contract over your ￡5k/day contract. That said, with a Toll Agreement in place, service levels and lead times can be defined and so as you provide enough notice, production lead times should be honoured. It's the unplanned, urgent jobs that you could just slip into our own production plan that you won't necessarily have control over when working with a Toll Manufacturer.

In summary, Toll Manufacturing is a great way to reduce capital investment and ongoing running costs for your business. It's also a great way to get your product to market quickly. To gain these benefits you'll have to be prepared to give up a little control and maybe your specialist knowhow. However, with the right Toll Agreement in place you can define service levels and also safeguarding your intellectual property, protecting your product for the long term.