Colorants – Make vs Buy

July 22, 2014

The production of colorants is quite similar to that of paints. For paint manufacturers with surplus production capacities, making their own colorants would appear to be a sensible use of available resources. However, if we take a closer look at the manufacturing processes of colorants for paint, taking into account factors beyond the costs of raw materials and production, we see it’s a very different story.

Let us look at a production scenario: A paint manufacturer uses a 15-colorant tinting system and produces 50,000 liters of colorant each year for its own use. If the average price charged by a third party producer is an estimated 12 Euros per liter, this volume would cost the paint company 600,000 Euros. If we only look at the raw material costs the paint company might argue that captive production would only cost 300,000 Euro. Clearly, paying a markup of 100 percent would be uneconomical. However, a detailed breakdown of costs, that takes into account the production-related differences between colorants and paints, shows that the variation between the purchase price and internal production costs is by no means as large as it seems.

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