Guide
Toll blending and contract manufacturing are not the same thing
Updated
These two are used interchangeably in enquiries and quotations, and they allocate risk in opposite directions. Establishing which one you are discussing should be the first sentence of the conversation.
The defining question
Who owns the raw materials while they sit in the blender's warehouse? Under a true toll, you do, and you are paying for processing. Under contract manufacturing they do, and you are buying finished product.
Everything else follows from that: price risk, inventory financing, yield loss, and how easily you can leave.
Price exposure
Under a toll you buy the inputs, so a raw material move lands on you immediately and in full, in both directions. Under contract manufacturing the manufacturer absorbs it in the short run and passes it on through price reviews.
Neither is better. A toll suits a buyer with procurement capability and a view on inputs; contract manufacturing suits one who wants a single number and no exposure to a market they do not follow.
Yield and loss
Blending loses material to changeovers, vessel heels and testing. Under a toll that loss is yours, on their process, which is why the yield allowance is one of the most important numbers in the agreement.
Ask what allowance is assumed and who bears loss beyond it. A vague answer here is expensive at volume.
Exit
From a toll you can, in principle, take your materials and your specification elsewhere. From contract manufacturing you are requalifying a product from the start with a new supplier.
That difference should influence which arrangement you choose for a product you expect to move.