Toll blending (also contract manufacturing, chemical blending and a range of other names) refers to outsourcing your chemical blending and manufacturing process to a blending specialist.
It’s a straightforward service that can offer you a number of cost-saving advantages — such as not having to invest in expensive blending and storage equipment or having to worry about complying with increasingly strict regulations.
But while those and many other benefits are easy to find with a quick Google search, this article will focus on how toll blending can play a role in helping you thrive in an increasingly competitive global chemicals marketplace.
Today’s Chemical Manufacturing Environment Favors the Agile
Many years ago, famous business consultant Peter Drucker commented that “…the business enterprise has two —and only two — basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”
But over the past few decades, chemical companies have struggled with innovation.
From the 1950s to the 1970s, breakthrough innovations were normal. Many plastics and polymers were introduced to the market, creating massive value across many other industries around the world.
However, new products dried up after 1980, and for the next 30 years, chemical companies focused on expanding globally to take advantage of growing international markets. They discovered that returns on international investment were better than those from R&D spending. To succeed in these markets, developing competitive cost structures took priority over innovation.
After the 2008 financial crisis, however, globalization stalled, and products turned into commodities. Companies turned to mergers and acquisitions to keep up growth, but this created cumbersome, oversized companies that continue to rely on revenues from best-selling products that are decades old. R&D funds are stretched too thin to stay competitive.
This creates the perfect environment for agile, more entrepreneurial chemical companies to create a competitive space for themselves, through intelligent R&D spending and clearly differentiated products.
But achieving this success depends on how well you adapt to the trends that are gathering strength in the industry today. And doing so requires a level of flexibility that the legacy chemical companies can’t match. This is where toll blending provides a major competitive advantage, but let’s look at some trends first.
Some Major Trends in the Chemical Manufacturing Industry
Several shifts in the industry have emerged over the last decade or so:
- Portfolio coherence. Over the last decade, investors believe that large conglomerates have overly ambitious portfolios that are spread too thin. These investors prefer agile companies who focus on their competitive difference and outsource commoditized activities and production that add little value to the bottom line.
- Value-driven customer relationships. Digital technologies are allowing companies to improve their offerings to their customers. AI-based end-use product testing improves customer insights. The Internet of Things is improving engineering and maintenance processes. And streamlined digital platforms create a better user and purchasing experience for customers.
- The circular economy. Sustainability, and the growing scarcity of raw materials, are increasing concerns. Accompanying this are expanding emissions regulations.
- New business models. The other three trends contribute to the need for businesses to maintain strategic agility, able to rapidly respond to market changes.
What all of these trends mean is that smaller, more specialized companies who retain flexibility, while investing healthily in R&D and innovation, will have the advantage.
How Toll Blending Fits into a Successful Future
Companies are finding more advantage in information, knowledge and relationships than in physical assets. Capital investments go further when put towards innovation instead of facilities and equipment.
For example, on average, specialty chemical companies spend 4-8% on R&D and 4-9% on new plants and equipment. The company who only spends half the average investment on physical assets and instead, devotes the extra finances towards R&D, will have a significant advantage in today’s knowledge economy.
Of course, reducing real asset costs can only happen when you have an alternative to manufacturing your products. And that’s where toll blending offers a sweet spot.
Many toll blending companies go beyond just the ability to mix your formula. They can handle everything from sourcing raw ingredients, to helping you develop your proprietary formulation, to packaging the final product (including handling private labels) and distributing it to the end user.
They absorb the burden of regulatory compliance. And because they have extensive experience with blending chemicals, they can ensure a high level of consistency and quality, which can be very difficult to achieve in-house.
You can avoid the up-front cost of plants and equipment as well as the ongoing labor expenses of hiring your own chemists. You can also avoid the burden of coordinating your own logistics, sourcing or creating your own packaging and, if you want, even avoid dealing with suppliers.
In other words, toll blending can remove significant risks (from shipments gone wrong to poor quality control) and costs, while leaving you lean and agile.
It’s a perfect solution if:
- you’re a newer company that needs to prioritize R&D in your capital expenditures,
- you are prototyping a new product and need low quantities,
- you are branching out into a new product line that would require different equipment than what you already have,
- your business is struggling to decide whether you are an R&D or manufacturing company,
- you need to get products to market quickly, and don’t want to be delayed by setting up the physical infrastructure, supply chains or distribution channels usually required,
- you want to maintain the agility to pivot quickly, depending on the market, and don’t want to have capital tied up in physical infrastructure that you may need to change out, and,
- you’re facing low demand for your new product and don’t want to invest in the necessary equipment to keep production in-house until demand increases.
Imagine being able to run your business with just the engineers, scientists and salespeople in the front office. No need for the hassle of handling manufacturing yourself (or outsourcing it abroad). You can focus on your strengths. Sharpen your focus on becoming an industry leader through R&D and innovation. Spend more time on building sticky relationships with your customers that will keep them coming back to you. Focus on providing more value to your market by becoming a total solution provider. Respond to market demands much faster.
Your company will have the focus and flexibility to take on the stagnating conglomerates in your industry, giving you a competitive edge and better margins.
The Midwest Toll Blending Advantage
At Midwest, we have over 40 years of experience creating our own proprietary chemical blends. As the leader in the fields of dust control, road stabilization, lubrication and anti-/deicing, we have pioneered new product development that sets the standards for the industry.
You can trust us for consistently high quality blends, sourcing raw material, packaging and shipping final product. We can even do private labels or help you develop your formulation.
Learn more about our toll blending services — our full range of industries, services, and capabilities, as well as our production capacity.