Toll manufacturing, or tolling, is the outsourcing of part or all production to another company. With toll manufacturing, you are responsible for providing semi-finished products or all or most of the raw materials.
A toll manufacturing agreement occurs between two or more businesses. One company owns the idea or design for a product, supplying materials to the other company to manufacture part or all of the product. The agreement ensures that all trade secrets and intellectual rights are protected from being passed to competitors or used to manufacture competing products.
Toll manufacturing agreements can also be referred to as tolling process agreements or tolling agreements. While the agreement needs to be customized to address specific needs, a template for toll manufacturing agreements is a good place to start.
Toll manufacturing offers several key advantages:
- Toll manufacturers charge a flat fee
- Control over the cost of raw materials and overall quality remains with you
- Customization capabilities
- Handling of raw materials gets taken care of by the toll company
- Increased production efficiency
- On-demand capabilities that allow you to seek services as needed
- Provides production convenience, particularly for chemical toll manufacturing
- Reduced labor costs
- Save on capital equipment