CONTRACT & TOLL MANUFACTURING
As an example , Stiers notes that airfreight is expensive , but can be the difference between getting raw materials or intermediates to a custom manufacturing facility in time for a trial date . If airfreight is not an option because a material is hazardous or has to be kept at a certain temperature , that has to be taken into account when the project schedule is planned .
“ There has been a dramatic change in the consideration for logistics in custom and toll manufacturing ,” says Stiers . “ Companies at all levels are reviewing their entire makeversus-buy decisions at the executive level . Decisions about where to conduct lab and pilot and production operations are being revised in the light of supply chain considerations .”
Logistical realities are even affecting R & D . “ When companies are making determinations about what chemistries to pursue , they are considering not just where capabilities are but where the logistics are favourable and even where the talent is . This is work that people have to do in person , not remotely .”
Keeping inventory
Nation Ford Chemical ’ s production is about evenly split between toll manufacturing and its own lines . “ For our own production , we keep a large inventory of raw materials and finished goods ,” says Jay Dickson , company president . “ That has been our long-standing policy and as a result we have mostly been unaffected by the supply chain disruptions .”
One an example of the company ’ s commitment to security of supply was in how it responded to a snag in deliveries of a material it brought in using intermodal ISO tanks . “ We did not have trouble getting the volumes , but in booking space for the tank containers on ships ,” Dickson relates . “ In 2021 we
Dickson – Failing to deliver far costlier than logistics
switched to bulk deliveries by tanker ship . We leased a tank at the port .”
Underscoring how robust logistics can be a competitive advantage , Dickson recalls that in 2008 , during the Beijing Olympics , there were huge problems getting raw materials out of China . “ We picked up a lot of new business . There are costs but those are cheaper than having to tell a customer that you can ’ t deliver . That is the worst possible outcome ,” he says .
Dickson agrees that the same level of supply chain control is not possible with toll manufacturing , but the same principles still apply . “ We have had a few delays ,” he says , “ but in the end we were able to deliver on time 99 % of the time .”
That sort of a track record plays particularly well into the trend of shortening supply chains . “ Our toll inquiries are three times what they were in 2019 ,” says Dickson . “ Companies are looking for North American production . Some in Europe , but mostly North America .”
Scheduling challenges
Capacity , capability and supply come together at scheduling , explains Patrick Killian , principal of Treadstone Advisors . “ In toll manufacturing the schedule is , by nature , blocky . And there is a bilateral contract attached to each of those blocks . It gets very difficult to schedule efficient operations , or to fill a plant with just toll manufacturing .”
One tactic among some customers is to stage their raw materials at or near their toll manufacturers to be ready for any opening in the schedule . “ Custom chemical manufacturing in North America and Western Europe tends to be of a scale , complexity and organisational style that the operators can be both patient and agile ,” says Killian .
“ What is not talked about often , but is very important , is how the staging is arranged , how and where to store raw materials and finished goods . It ’ s not just a matter of having capabilities , there has to be willingness and there have to be relationships .”
While opportunism is necessary , it is not usually sufficient on its own . “ Eventually every successful toll manufacturer makes its own stuff , to some extent , because of the fundamentally blocky nature of running campaigns for clients ,” says Killian .
The key question then becomes what to make . Sticking with the equipment and expertise in hand seems obvious , but that may put a toll manufacturer uncomfortably close to competing with its clients , or the enduse market may be saturated .
“ There is no formula of what chemistry to pursue ,” says Killian . “ The decision is very situational . Push or pull ? Go with your strengths , or pursue the needs in the market ,” even if that is a different type of processing . ●
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