Should You Toll?

Eight questions to answer before you decide.

Toll manufacturing is the process of transferring the manufacture of a product to a third-party company. If not managed carefully, the risks can be high: what happens if the tolling company manufactures one batch out of specification?

With more than 40 years of experience as a toller and a process owner, Polymeric Systems Inc. has developed some guidelines for minimizing the risks to your time, money, and formulas.

1. When Should You Toll?

There are three situations in which tolling can be beneficial: when you need extra capacity, if you want to reduce capital risk, and when disaster strikes and you cannot recover in time without outside help.

A well-managed tolling relationship will provide extra capacity through use of the toller’s facilities. When used for batch and semi-batch manufacturing, a toll manufacturer can produce material for sampling and initial stock before you invest in equipment or obtain permits, thus reducing the financial risks and time required for a product launch.

In addition, most experienced tolling companies have the technical and regulatory resources to help overcome any last-minute hurdles. Having one or more pre-qualified manufacturing partners also provides a safety net to keep product flowing in case of an emergency.

2. What is Needed?

The transfer to toll manufacturing involves several people, many of whom will be outside your organization. A project scope will list all of your requirements in one place as an easy reference for the project. Most project scopes include:

• A project champion
• A time frame
• A budget
• Process inputs
• Process outputs
• Process capacity
• A current process description
• Identification of any known issues or pitfalls
• Identification of any product or process development that needs to be done
• Identification of intellectual property to be protected

3. Who Should Manage the Project?

Who is the ideal champion to manage both internal and external aspects of the project? This person should have a good understanding of the customer’s requirements and be familiar with the technical aspects of manufacturing the product.

Before you choose a tolling company, it is essential to update the cost of your current process, check current raw-material prices and assess the value of the finished good. Doing this first will help to screen candidates and guide your negotiations. Make sure your documentation is current, as this will form the basis for assessing potential tolling candidates.

4. Where Can I Find Good Tollers?

The ASI Buyers’ Guide and The Adhesive & Sealant Council, Inc. are excellent resources for locating the services you require. Another source is your suppliers - adhesive raw-material and equipment suppliers are likely to know many companies that handle products and processes similar to yours and have a good reputation for tolling. Be advised that there may be efficiencies of scale in a tolling relationship by combining your buying power with the toller's.

When selecting a toller, screen several companies to find a good fit. Develop a general view of each company and its capabilities by studying the company’s literature, such as the product catalogs and capabilities brochure. Companies who do a lot of tolling work may have guidelines for you to review. Determine what each company can offer you by considering the following.

• Does the company have the ability to produce your product to your specifications? Making many adhesives and sealants requires specialized equipment.
• Does the company keep quality standards that meet your and your customer’s expectations?
• What packaging options are available? Finding a toller who can put your adhesive into its final package will save on both freight and headaches.
• Does the company have the capacity to take on the volume of work proposed?
• Are the costs and delivery lead times in line with your needs?
• Are there any gaps in technology or expertise critical to your requirements?

Arrange for on-site visits when you think you have a good match. If you have trouble determining your best candidates, lay out your requirements from the project scope and analyze the gaps between what you want and what each company offers.

5. How Do I Protect Myself?

After narrowing the field, steps are needed to protect your intellectual property, business knowledge and other information. A well-written, fully executed confidential disclosure agreement is essential to protect your processes and chemistry. Your CDA should define confidential information, ensure return of all information at the conclusion of your relationship, and identify a protection period after the relationship ends. Your CDA should be reviewed by a legal authority to ensure completeness and enforceability.

In addition to executing a formal CDA, there are precautions you can take to limit the exposure of your proprietary information while negotiating with a potential toller.

• Have the person who is the most qualified to handle communications work with your project champion. Your scientists and engineers will be focused on getting a new operation up and running, something more important to them than intellectual property. Adding an information “gatekeeper” helps prevent something from slipping out.
• Don’t e-mail confidential information. E-mail is not a secure medium; overnight courier service is.
• Keep your eyes open. Pay attention to how well the toller treats other customers’ intellectual property during interviews and plant visits.

6. How Do We Start the Tolling Process?

Once you have identified the best toller, it is time to start working on the technology transfer. If there is still development work to be done, that should be the first priority. Access to technical staff and pilot scale equipment is essential when developing new mixing processes.

As you negotiate the technology transfer, verify the toller’s capabilities. Release a packet of detailed process information: formulae, raw materials, suppliers, mixing instructions, test methods, batch-acceptance criteria and packaging specifications. Technical representatives from both companies must meet to analyze the processes and assess the toller’s capabilities.

Make sure the process equipment can handle all special needs, such as high-viscosity mixing and special packaging. This will uncover any gaps in technology or capabilities. If any new technology requires development, be sure to determine who will do it before work starts. Negotiate development costs separately from any manufacturing agreement to avoid dispute about who will own the technology.

As the gaps in technologies are closed, validate the process with technical personnel from both companies. Process validation can be as simple as making a small batch, replicating what would be done to manufacture enough material for a line trial at your customer's facility. The objective is to ensure that the agreed-upon process is used and that it generates acceptable product. In addition, ensure that the toller can carry out all inspections and testing needed. Under most circumstances, you will be responsible for the validation costs.

7. How Do We Move the Process to the Toller?

First, a long-term plan is necessary. Using the validated process as a guide, you can then begin to transfer production to the toller. Now is the time to negotiate the payment structure of the deal: do you pay by pound, machine time, or batch? Be sure to answer such questions as: Are equipment changeover times included? Who procures raw materials? How will test data be reported? Will you enter into a supply contract? If so, for how much material per year? What about costs associated with closing remaining technical gaps, such as buying new equipment? Will these be paid by the toller or the process owner?

8. How Do I Maintain the Process?

The project champion can begin to reduce his or her involvement as the toller ramps up production. Some post-transition issues may arise, such as the following.

• Out-of-specification materials. If a batch of material is out of specification, what should the toller do? Are there guidelines for batch correction? If the toller runs a second or third shift, will there be continuity of technical control?
• Non-conforming material. How will you determine who is responsible for non-conforming material?
• Management of change. It is critical that the toller know who in your organization is authorized to make changes. It is also important to have a procedure to review and approve changes the toller proposes.

The information in this article will help guide you through the tolling process. By selecting experienced partners with expertise in your industry and a proven track record, you can simplify the process, avoid mistakes, and reap the rewards tolling offers for many years to come.

About the Company

PSI manufactures adhesives and sealants. The company has extensive toll-manufacturing experience in a range of formulations, particularly highly viscous materials requiring high-shear mixing and/or dispersion of finely divided solids under controlled atmosphere and temperatures.

For more information, phone (800) 228-5548 or visit www.polymericsystems.com.

Links

• Polymeric Systems Inc. (PSI)