Master of Business Administration Executive
Faculty / School
School of Business Studies (SBS)
Year of Award
Dr. Rameez Khalid, Associate Professor, Department of Management
MBA Executive Research Project
With increasing market competitiveness, organizations either have the option of differentiating on cost or on features. Companies are constantly battling to introduce new products in the market which are valued by the customer. At the same time, the same organizations are putting in efforts to minimize wastage and hence the cost of manufacturing. Hence, firms are finding it easier to converge their complete focus on their core competency, which is new product development and marketing strategy, while outsourcing its manufacturing and associated operations in the supply chain. Toll manufacturing is one such arrangement in outsourcing of manufacturing operations where the raw materials for the product are supplied by the focal company and a certain toll or fee is charged to the toller as conversion cost. This allows the focal company to retain ownership of their product and focus on its research & development and introduction to market while all hassle of manufacturing is borne by the toller.
While this method of outsourcing manufacturing operations is becoming more common across the globe including Pakistan, there has been very limited articulated research on the topic and hence its true potential remains unearthed. Although, there has been significant research carried out in the field of contract manufacturing, which is another form of outsourcing manufacturing operations, the two terms have been used interchangeably at multiple instances and hence led to confusion. However, extensive literature review allowed us to differentiate among the various forms of outsourcing operations when we segregated the risks and responsibilities of different activities within the outsourcing manufacturing supply chain. Through words of mouth, it was observed that a significant percentage of Pakistan’s market was exposed to the toll manufacturing environment. However, there was lack of credible research which could guide them to optimize their tolling operations and hence all improvements were being carried out on experience basis.
Research was therefore conducted to explore the landscape of toll manufacturing in Pakistan which would not only categorize the different outsourcing manufacturing operations but would also detail the alternative scenarios and sectoral value chains in TM environment including the history, emergence and new trends along with the infrastructure, regulatory and human resource requirements in TM mentioning its specific strengths and weaknesses. The research would also produce a template of contractual agreement for a TM arrangement, highlighting best practice clauses alongside a sample cost model for calculation of per unit cost in the domain of TM.
In Primary research, experienced professionals from the industry were contacted who were exposed to the TM setup either as a toller (aka Contract Acceptor) or as a client (aka Contract Giver). Convenience / Snowball sampling technique was used to select the people and organizations. Additionally, official contracts were also studied to gather the best practice clauses for that specific segment. In Secondary research, literature review was covered which encompassed research papers, internet articles, and books to support the objectives. An interview guide was developed with the purpose to act as a guidance document to gather the answer of respondents. This was reviewed in a focus group discussion and recommended additions were incorporated in the final guide. The guide covered the technical, financial, operational, legal, and contractual aspects of the TM arrangement. The methodical choice was mono method which included qualitative interpretation of the responses.
The thematic analysis conducted revealed that the themes of demand, viability, evaluation, infrastructure, quality, risk & responsibility, contract, and cost model are most frequent among others. While some views were positive around the TM environment, some very drastically different. Similarly, while some segments are strictly regulated, others are not. Hence, a comparison among these two perspectives was also covered.
Since this research is limited to the segments of lubricants, pharmaceuticals, automotive and construction, the toll manufacturing environment in the segments of FMCG, chemicals, electronics etc. can be further studied to extract their best practices in contractual agreements and cost models. Additionally, the quantitative aspect of TM can also be explored keep in view the profitability from both the toller’s as well as the client’s perspective. Finally, although the research takes into account international toll manufacturing examples, further analysis on a specific region can be conducted to realize the actual potential of toll manufacturing.
This project is aimed to act as a guideline for both tollers as well as clients, to help them in understanding the growing potential of this domain as well the risks and responsibilities associated with each activity in the value chain.
Nabi Dar, T., & Butt, M. (2023). Evaluating the viability of Toll Manufacturing in Pakistan (Unpublished graduate research project). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/research-projects-emba/608
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