S OCM A S P E C I AL FE AT UR E
SOCMA Members Seeing Increased Business in Toll Manufacturing More and more chemical companies are outsourcing the manufacture of those chemicals for which they may lack either technical expertise or efficiencies of scale. This practice is commonly known as contract manufacturing, or tolling. When you look at the world of contract manufacturing, there are many trends and factors that impact not only the relationship between the customer and supplier but also the success of the partnership and the company’s bottom line.
n general, SOCMA members have reported increased new business inquiries and expanding opportunities with existing customers, year over year. As a result, some member companies are expanding their operations through infrastructure upgrades. One key factor impacting a tolling relationship is the real cost of commercialization of a new product, which can be quite expensive. “Those customers that understand the costs involved and are prepared to take those risks are the ones that are the most successful,” said Jay Dickson, President of Nation Ford Chemical, Inc., a specialty chemical and toll manufacturer in Fort Mill, SC. To ensure success in the customer-supplier relationship, SOCMA members must set parameters and establish ongoing control mechanisms written into their contractual supply chain agreements. “Besides price and quality, which are obviously included in a supply agreement, volume expectations should be the third most important element,” Dickson said. “Typically, tolling customers are overly optimistic on how quickly their sales will develop with new projects. It is important that both the toller and the customer include minimum and maximum volumes, as appropriate, in a supply agreement.” These agreements tend to vary between different types of customers. For example, “pharmaceutical contracts may include more details relating to acceptable quality of product and product specifications compared to those that involve industrial products,” Dickson said. “Small companies are more interested in the relationship rather than the contract, while the large companies have specific procedural methods prior to hiring a toller. In other words, toll production for a small company can be based on trust rather than attempting to write-in all details into a lengthy contract.” John Foley, CEO of KMCO LLC, has spent 30 years of his career working at large, multi-national specialty and agro chemical companies, and offered the following insight into developing successful tolling relationships. “Now, having the opportunity to head KMCO, one of the largest global customer chemical manufacturers, my advice would be to ensure that you partner with companies that not only have the assets capable of producing the chemistry, but also the strategic, long-term commitment to custom manufacturing, plus a management team with the bandwidth to deliver competitive, operational excellence while ensuring safe and compliant operations.” Dickson also recommended choosing tollers with a proven history of performance. “Some of these tollers will be near their equipment capacity because of a high demand for their services,” he said. “It is always better to invest in equipment at an experienced company than choose a toller that may have immediate availability, but lacks the will and experience to perform effectively.” As a caveat, it is imperative that any toller be able to demonstrate a top-down level commitment to environmental, health, safety and security and demonstrate an exemplary track record in this area. Nobody wants to do business with a company that may run afoul of any government regulations, or worse yet, cause harm to the environment or human life.
48 Speciality Chemicals Magazine 36.08 November 2016
Jay Dickson, President, Nation Ford Chemical Inc
John Foley, CEO, KMCO LLC