The outsourcing of business support functions such as information technology and human resources is as common in the chemical industry as any other. Maintenance operations also are now regularly in the hands of outside companies offering financial guarantees that your plant will not suffer any unscheduled downtime. Acting as something of a corporate “comfort blanket,” these and other outsourced operations should allow the company to get on with doing what it knows best — producing chemicals.
However, there are times when it might be better to outsource even that core activity of producing chemicals. For instance, your plant might not have sufficient capacity at the right time, your operators and engineers may lack the necessary expertise to execute a particular chemistry, or you may not even have all the regulatory permits required — any or all of these might persuade you to consider taking your production out of house to a toll processor or contract manufacturer.
John Wetzel, director for fine chemicals with Rütgers Organics Corp., State College, Pa., has been involved with toll processing and contract manufacturing since 1980. “This was a time,” he recalls, “when there was a reluctance within chemical companies — certainly among their engineers — to believe that outsourcing could be better than their own in-house production. But their managers were soon amazed at the prices and speed at which their processes could be handled by contract manufacturers.”
One example he cites from those early days was a project that enabled a major manufacturer to bring a specific product to market a year earlier than it could have done using its own resources. That company is still a long-term customer of Rütgers, as are many of its other clients. “We go mainly for multi-year contracts,” says Wetzel. “Although some business involves process development — starting at the pilot scale and working through to full-scale production — more often it’s a case of taking over production of existing processes on behalf of the customer.” He sees this largely as a reflection of the changing face of the chemical industry itself: “Companies striving to cut costs, while maintaining production at the highest possible levels of quality.”
At its production plant in Augusta, Ga., and pilot plant at State College, Rütgers undertakes contract manufacture of a wide range of synthetic organics mainly for agrochemical and pharmaceutical companies, at production rates of up to around 1,000 ton/yr. This ability to offer various, though related, chemistries and process operations at varying levels of capacity is typical of many toll processors. Wetzel says that “whereas some companies undertake toll production merely to fill excess plant capacity, Rütgers’ plants are dedicated to custom manufacturing.”
This point is echoed by Dean Segal, vice-president of sales and marketing for Pope Scientific, Saukville, Wis., a company specializing in toll processing services for heat-sensitive materials. “Unlike many toll processors, who may make specific products for themselves and happen to have spare capacity to offer, Pope does not have any bulk product. We specialize in high-vacuum molecular distillation, evaporation and fractionation.”
Pope is, in fact, an example of that breed of toll processors that started out life as specialist equipment producers rather than chemical manufacturers. “We always did feasibility testing to support our equipment technology research and development,” explains Segal, “and then a dozen or so years ago customers started asking us if we could use our in-house facilities to process their materials. So we made toll processing a profit center within the company.” Underlining the attractions of toll processing, he says: “With the costs and risks involved in bringing products to market and the need to do that quickly, it makes sense for producers to come to us, as we are experts in that type of distillation.”
Getting extra help
This really is the essence of toll processing. Outsourcing your processing requirements can give you access to levels of expertise and equipment that might otherwise be lacking in your own organization. But first you have to find a processor with that right mix of technology, equipment, expertise and — probably the one thing you are most short of — time, to meet your processing requirements.
One point of reference recommended by Segal and others is their trade association, the Synthetic Organic Chemical Manufacturers Association (SOCMA), Washington, D.C., which runs the annual Informex exposition (next in New Orleans, Feb. 21-24, 2006). This gathering of nearly 500 manufacturing companies, many of which offer toll processing services, is a good source of “cross pollination” of ideas, expertise and business, according to Segal.
A regular exhibitor at Informex and a contract manufacturer of nearly 30 years’ standing is Nation Ford Chemical, Fort Mill, S.C. At its 19-acre site, the company produces a variety of organic intermediates, solvent dyes and pigments for customers worldwide to use as intermediates in their own operations. But the other side of the business — with totally separate processing facilities — is “typical toll processing,” says CEO Jay Dickson.
Nation Ford’s membership in SOCMA is “invaluable,” he notes, both in terms of helping generate business for his own company and also — as is the case with many custom manufacturers — in his occasional search for a toll processor himself. With a foot in both camps, as it were, Dickson has his own views on what you should expect of a toll processor. “We look for engineering know-how,” he says, “whether they have the ability to take a particular product, a particular unit operation, and make it work. In short, engineering capability.”
Rütgers’ Wetzel offers a similar perspective. “Reliability,” he asserts. “That’s the most important differentiator. You have to be competitive on price but this shouldn’t be the main criterion. A toll processor has to recognize just how much of a risk people take when they ‘go outside of their own shop.’ If the toll processor can’t deliver, then the cost becomes immaterial.”
Lalit Chordia, founder and CEO of Thar Technologies, Pittsburgh, Pa., agrees: “When you consider a toll processor, cost can be a major consideration but at the same time you also look at their capability and track record to make sure your product is not going to be ruined.” Dickson also sees this as a key point, anecdotally talking of “nightmare stories that have come about because a toll processor has promised the world and not been able to deliver.”
Thar’s expertise is in the relatively niche area of supercritical fluid (SCF) technology, which it employs across four divisions offering services from analytical, laboratory and pilot-scale systems and system components, to proprietary research and toll processing services. Thar Process has designed and built two GMP-certified plant-scale systems at its Pittsburgh site for toll processing and also operates turnkey extraction facilities in India and Malaysia.
The company’s toll processing services include multi-purpose systems for processes such as extraction, coating and reactions, and chromatography systems for product purification. All are available for limited production lots but also for on-going processing. Business development manager, Brian Moyer, says “our customers focus on the end product. They probably don’t have expertise in the intermediate stages. We have our own scale-up and optimization group here, so we can offer all of those steps in house and then do toll processing for the company. We’re a single point of access for anyone interested in supercritical fluid technology.”
And a rapidly growing number of companies are interested. Moyer says there has been an increase in the uptake of toll processing generally over the past year, with SCF technology doing especially well. “We are growing at around 25% per annum and we’re seeing growth on all sides of the business — research, development, as well as toll processing.” The food and nutraceutical sectors in particular have picked up on SCF as a way of processing their products without having to resort to the use of solvents for product extraction.
With batch sizes ranging from as little as 1 or 2 kg to production lots of up to 100 metric tons, Thar has to cope with a problem common to all toll processors: how to schedule capacity to meet changing requirements from different customers, all with different materials to process. “That is always a limiting factor,” agrees Chordia, “but we have to work around those issues. We develop our processes based both on what the customer wants and what equipment is available. That’s always an issue, but that’s our expertise — we design the processes to fit the equipment that’s out there.”
“It’s like trying to fit together a jigsaw puzzle,” Pope Scientific’s Segal says. “We have several different scales of equipment and customers that have different quantities to process. And it’s made more complicated by the wide range of materials we can handle.”
Like Thar, Pope also is seeing an upturn in toll processing activity, as is Dickson at Nation Ford. He believes one of the reasons behind the growth in the sector is the recent closure of smaller plants by mainstream chemical companies, brought about by increasing competition from countries such as China and India or as a consequence of mergers or acquisitions.
Paradoxically, Thar also benefits from the lower cost of producing overseas but rather more directly through its joint venture with Indo-Global Spices in Bangalore, India. This gives the company considerable flexibility, according to Chordia. “Our approach to toll processing is two-pronged,” he says. “If cost is the major over-riding issue for a customer, then we can have the material processed overseas. But for that we need longer lead-times. Then there are customers who would not want their material shipped overseas in any circumstances. They want to inspect your facility, feel comfortable with it. For that we use our U.S. facilities.”
Visiting the site
Any reputable toll processor should, of course, be prepared to let potential customers inspect its site. Many tollers will point to ISO 9001 certification as an indicator of their quality management, while all should be able to prove their plants are operated in accordance with all the applicable environmental, health and safety regulations. Expect, in a word, “professionalism,” says Segal, who considers a visit to a toll processor’s facility to be “really critical for the customer, particularly those from food, fine chemical and pharma companies.”
Seeing the scale and scope of operation of a toll processor first-hand should give a reasonable indication of its capabilities. Keep in mind though, that many tollers, if they lack, say, a particular unit operation for a specific project, are prepared to work with their customers in investing in new plant and equipment. According to Segal, companies now are realizing that they are partnering with their toller and accept that some negotiation might be involved if extra capital expenditure is needed to fulfill their requirements.
For most projects though, it will be a case of “what you see is what you get.” And if you are impressed by what you see (and hear, from the tollers’ engineers and operators), the speed at which your project can get under way then could be a determining factor. Dickson, for example, says that Nation Ford, as a privately owned company, can react quicker than others. A point also made by Wetzel: “Our customers tend to be large operators but being bigger means they can be slower to react to meet changing market needs. We’re much smaller, without the layers of bureaucracy to slow us down.”
Of course, many large operators also offer toll processing. For instance, Dow Haltermann Custom Processing (DHCP), Midland, Mich., which leverages Dow’s global strength, claims to be one of the world’s biggest providers of distillation, reactive distillation and other non-pharmaceutical contract manufacturing services. DHCP has world-scale plants at strategic locations in both Europe (three in the northeast of England and one in Antwerp, Belgium) and the U.S. (at Midland and Houston and Freeport, Texas). When it was formed four years ago, DHCP combined Dow’s own contract manufacturing services unit with those of Haltermann Custom Processing, Hampshire Chemical and Mitchell Cotts Chemicals. The result was a company that has become “much greater than the sum of its parts,” according to DHCP general manager Simon Upfill-Brown.
“Using our proven systems for process development and trial production, we help our customers reduce time-to-market and eliminate their capital expenditures in introducing new products,” he says. “We not only get the product to market quickly but we often become the long-term producer for the client.”
And therein lies the attraction of all toll processors, large or small — these companies are prepared to become your production partner, taking their fair share of profit in return for giving you peace of mind.