Build vs. Buy: The True Cost of Digital Transformation for Chemical Companies

Many chemical, ingredient and polymer companies face a tough decision: should they build custom digital tools or buy off-the-shelf solutions to support their digital transformation?

This decision significantly impacts cost, time to market and resource allocation. Foundational elements like product data organization, integration into PIM, MDM and ERP systems, and ongoing maintenance are essential for success.

This article will uncover the real cost to build these tools from scratch versus purchasing Knowde’s integrated platform, including key considerations for implementation, integration and long-term management.

What’s in the article:

• Understanding the Core Components of Digital Transformation in the Chemical Industry
• Cost Breakdown of Building In-House
• Buying Tools: A Cost-effective Alternative
• Comparing Total Costs to Build versus Buy
• Real-world Cost to Build Example
• Key Considerations for Executives

Understanding the Core Components of Digital Transformation in the Chemical Industry

Organizing product data is the first thing that needs to happen in any digital transformation project for chemical, ingredient or polymer companies. Product data management is the crucial first step to building digital customer experiences or improving internal processes. These can include (but are certainly not limited to):

• Customer portals
• Digital product catalogs
• Sales enablement tools
• End-to-end value chain reports
• Digital bills of materials or bills of lading
• Integrated supply chain planning

After organizing product data and launching individual tools of a digital transformation project (like a digital product catalog on your website), chemical companies need to plan for system integration to get the most out of their investments. Product data needs to be integrated with major business process systems such as ERP, CRM, websites and more.

Ongoing maintenance of the product database, digital tools and integrations is the final phase. This maintenance includes continuous updates, fixing errors and data governance.

Breakdown of Cost to Build In-House

Initial Development Costs

For this calculation, we’ll just look at what it would take to build a product master database. Keep in mind that this will not include any of the costs associated with building customer-facing tools like customer portals or product catalogs on a website.?

Initial development costs include:

• Data Organization: Involves manually ingesting, cleansing and standardizing vast amounts of product data
• Custom Development: Hiring developers, consultants and system integrators. Estimated at $ millions over time
• Time Investment: From initial design to deployment, this can take years

Integration Costs

Once you’ve got the product master database, integrating with crucial business processes and systems unlocks the full value of your key systems.

Integration costs include:

• Personnel hours for months of system integrations and customizations
• Integration platform/middleware fees and consulting fees

Integration of product data with ERP and CRM systems can build efficiency and increase accuracy in internal processes such as demand forecasting, supply chain management, sales and marketing strategy.?

Ongoing Maintenance Costs

Maintaining a custom-built product data management system requires dedicated staff for regular updates, error corrections and system management. Over time, these recurring costs can add up to $ millions, making long-term maintenance a significant financial burden for companies. (We’re not even considering any other tools you may need as part of your digital transformation project.)

How did we come up with “millions”? The U.S. Bureau of Labor statistics shows $101,000 as the average base salary of a database administrator in the United States. Database developers average $99,000 a year according to Indeed.com . Total cost of employing full-time exempt (FTE) engineering staff can be calculated around 2.7x the base salary . You probably need at least one database administrator and possibly half the time of a database developer. Let’s also assume you’re running a lean MySQL database on AWS (Amazon Web Services) using their RDS (relational database service). Using their calculator with average numbers (which factors in small business sites), you’re looking at roughly $450 a month or $5400 annually.

2.7 x ($100K x 1.5 FTE) + $5400 hosting = $410,400 annually

Buying Tools: A Cost-effective Alternative

Subscription-based tools offer a cost-effective, reliable alternative to custom-built systems. With a fixed, predictable cost structure and minimal customization needs, companies gain access to tools ready to use quickly.?

Chemical, ingredient and polymer companies should look for a solution that includes a comprehensive chemical-specific taxonomy. Unlike custom development, which can take years, Knowde’s tools are ready for deployment within weeks or months, depending on portfolio sizes. This enables chemical companies to achieve faster time-to-value and avoid lengthy implementation delays.

Native Integrations & Customizations

Knowde offers a connector that integrates with SAP S/4HANA’s Master Data Governance (MDG) module with the help of Integration Suite on BTP, SAP’s recommended integration layer for S/4HANA extensions. This connection facilitates smoother and faster product data management between SAP systems and Knowde’s product information management (PIM) system, providing a streamlined experience for chemical, ingredient and polymer companies.

Ongoing Maintenance and Support

Knowde also provides ongoing maintenance and support through a dedicated customer success team. Automated updates ensure data accuracy and system optimization, reducing the need for costly internal resources.

Comparing Total Cost to Build vs. Buy

Summary of Total Cost to Build versus Buy

Total cost to build: Millions of dollars

• Customization and implementation
• Consultants and SIs
• Ongoing $ costs and resource requirements from highly paid business functions

Total cost to buy: Fixed, low cost

• Subscription cost
• Small services fee
• Cost savings from improved data accuracy, fewer errors, streamlined operations

Resource Allocation Cost to Build vs. Buy

Building requires teams of developers, IT staff and PIM administrators. Post-launch of a custom-built solution, companies should still expect to resource people at the maintenance level to support ongoing upgrades, error correction, data entry and quality assurance. Additional resources may be required to manage addition of new features as business needs change or as technologies evolve. Knowde reduces this to a single project manager.?

With Knowde, staffing and ongoing maintenance costs are covered by a fixed subscription, freeing your business from variable project costs.?

Time to Value?

Building in-house can take years, delaying ROI. Knowde delivers within months, ensuring a much faster time to value. A shorter implementation timeline also allows companies to focus on the training and development employees need to use a new tool to the fullest potential. According to McKinsey research , companies get the most value from projects within the first year.

Real-world Cost to Build Example

A multi-billion-dollar silicon materials manufacturer, Acme Silicon,* set out on a digital transformation project to enhance its customer experience and streamline internal processes. However, the attempt to build a custom product data management tool and TDS generator quickly spiraled into a costly misstep.

*Company name has been changed.

Context

Acme Silicon partnered with a third party that lacked industry-specific expertise and attempted to repurpose their CRM to function as both a PIM and TDS generator. This decision led to several critical failures.

Outcome

Budget Overrun and Wasted Time The cost of the third-party agency’s involvement—including custom software, website development, and third-party plugins—exceeded Acme Silicon’s budget by over 1000%. These expenses didn’t account for the unforeseen costs of manually migrating thousands of documents or the ongoing maintenance fees. After wasting a full year (and over $1mil), the custom solution still failed to support the complex data models required to manage chemical-specific technical details effectively.

Key Considerations for Executives: Making the Right Decision

• Building custom solutions comes with significant costs and risks: Developing a product data management system from scratch can involve millions in upfront expenses, including software development, consultants and ongoing system maintenance. Many projects, like Acme Silicon’s, face unforeseen challenges, including data migration failures and budget overruns, making building in-house costly and time-consuming.
• Time-to-market considerations are critical: Custom development projects often take years to complete, delaying potential value realization. Executives must weigh the time it takes to design, implement, and maintain a custom solution against the competitive pressures to move quickly. Delays in deployment can lead to missed market opportunities and inefficiencies.
• Long-term maintenance and resource allocation: Custom-built systems require continuous management, updates and error corrections, diverting internal resources from strategic initiatives. Executives need to consider the long-term impact of dedicating teams to maintaining complex systems versus allocating them to higher-value activities that drive growth and innovation.
• Industry-specific needs and scalability: The chemical industry has unique data management requirements, and general-purpose or repurposed systems may not fully address these complexities. Executives should evaluate whether a custom-built solution can scale effectively and accommodate industry-specific nuances or if it will require costly reengineering as the business grows.
• Balancing cost predictability and flexibility: When making the build vs. buy decision, it’s crucial to account for predictable costs and potential risks. Building custom solutions often leads to scope creep and unforeseen expenses, while buying pre-configured, industry-specific tools can provide more predictable costs and faster time-to-value.

Building custom tools from scratch may seem appealing for chemical companies embarking on digital transformation, but it comes with steep costs, long timelines, and heavy resource requirements. Knowde’s platform offers a faster, cost-effective alternative with industry-specific features and ongoing support.

Ready to accelerate your digital transformation? Learn how Knowde can help your business achieve faster ROI. Get a demo