Turnkey vs. Tolling in a Contract Manufacturing Relationship
Turnkey means the Co-packer will make the entire product for you. They will order all of the ingredients and packaging on your behalf and you will pay for the finished product in one invoice.
Turnkey means the Co-packer will make the entire product for you. They will order all of the ingredients and packaging on your behalf and you will pay for the finished product in one invoice. This is a common option for larger brands that have a large number of products to manage so they don’t have to get into the complexities of supply chain for multiple categories.
Unlike turnkey, tolling means you will provide everything to the co-packer (formula, ingredients, and packaging) and they will only charge you for the use of their machines and labor, charging a “tolling fee” for the product passing through their factory.
Why someone would operate Turnkey:
- less work, gets you out of the weeds of supply chain management and managing procurement and inventory management of raw materials
- More direct view of final pricing (no variance of inbound freight)
- Typical of larger companies that have to manage multiple product lines. Also the preferred method of groups that are new to the food industry
- Potential for lower COG’s by tapping into manufacturers buying power
- Less ingredient waste at lower volumes (especially with unique ingredients)
- Typical of supplements (powder, capsule, tablets), and anything that has less potential variance (chips, nutrition bars, etc.)
Why someone would operate Tolling
- More control of your supply chain (you always know exactly what is going into product and aware of all supplier switches) able to shop for competitive prices at scale
- Easier to move from one copacker to another or have multiple co-packers with direct relationship
- No pricing mark-up from the Co-packer
- Generally quicker lead times pre-forecasting because you will always order raw mat’s with more fervor than a manufacturer
- Typically the format of more unique Food/Bev startups who need to supply lots of unique raw materials for their recipe that a manufacturer would not typically order in bulk for multiple clients.
If you have more questions about what might be best for your brand, feel free to email me at email@example.com
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