Tolling - Meaning & Definition

Published in Operations and Supply Chain Terms by MBA Skool Team

What is Tolling?

It is a service offered to those companies which are incapable of investing in heavy capital . This lowers their production cost , downtime cost on equipment and other pilot run costs associated with market testing . 

They are much more engaged in the process as compared to the trading company .They supervise the complete process  and conduct regular quality checks  before shipping of to their final customers.  It is usually on contract based agreement between the   provider of raw material and the party processing , converting and  providing financial relief to the  supplier of raw materials .

However  the ownership of the final product lies with the supplier  of raw material. The processing company does not buy the input raw materials from the supplier neither can it sell the final output produced.  However it can charge for the services it has delivered.

Example :

The agreement between an oil drilling company and an oil refinery .The drilling company  supplies the raw oil to the refinery .It is processed ,  distilled and  refined and separated to give several fractions .The final product is delivered back to the drilling company . The infrastructure  and capital setup , production and processing supervision, warehousing and finally the distribution all these activities are handled by the other contracting party.

Hence, this concludes the definition of Tolling along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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