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  • Bergerac Systems The Challenge of Backward Integration

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    Harish G Raut
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    Bergerac Systems, a small player in the veterinary diagnostic industry, faces business challenges of competing with established competitors and the operational challenges of high supplier dependency, delivery delays, and demand uncertainty due to economic conditions. Specifically, the company relies on a single supplier for test cartridges, experiences stockouts and delays, and faces price volatility and uncertainty from an unstable plastics supplier market. The document examines addressing these challenges through either acquiring GenieTech, a supplier with excess capacity, or developing in-house production capabilities.

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    Bergerac Systems, a small player in the veterinary diagnostic industry, faces business challenges of competing with established competitors and the operational challenges of high supplier dependency, delivery delays, and demand uncertainty due to economic conditions. Specifically, the company relies on a single supplier for test cartridges, experiences stockouts and delays, and faces price volatility and uncertainty from an unstable plastics supplier market. The document examines addressing these challenges through either acquiring GenieTech, a supplier with excess capacity, or developing in-house production capabilities.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    69 views4 pages

    Bergerac Systems The Challenge of Backward Integration

    Uploaded by

    Harish G Raut
    Bergerac Systems, a small player in the veterinary diagnostic industry, faces business challenges of competing with established competitors and the operational challenges of high supplier dependency, delivery delays, and demand uncertainty due to economic conditions. Specifically, the company relies on a single supplier for test cartridges, experiences stockouts and delays, and faces price volatility and uncertainty from an unstable plastics supplier market. The document examines addressing these challenges through either acquiring GenieTech, a supplier with excess capacity, or developing in-house production capabilities.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 4

    Describe the business and operational challenges faced by Bergerac

    systems

    Business Challenges Relatively new and small player in a competitive and already established industry
    (Competitors – Idexx Laboratories, Abaxis and Heska Corporation)

    Barrier to entry – Idexx Lab’s integrated suite of diagnostic instruments and veterinary
    software

    Need to establish a robust supply chain to match the increasing demands of the customer

    Operational Delivery delays and stockout of test cartridges due to high dependency on single supplier
    Challenges
    Uncertainty and unreliability from the plastics supplier – Due to very competitive and
    fragmented market, price volatility for petrochemical
    Higher holding costs for inventory and finished goods

    Uncertainty in demand due to the financial crisis of 2008


    Mr. Ian Wyckoff analyzed, the quantitative comparison of Exhibit
    -4 and felt that there is some error in the analysis? Do you think the
    quantitative analysis is correct?

    • Total Cartridges capacity for


    GenieTech would be doubled as
    they are operating on 8 presses
    • The new buyback period from
    the calculation is 1.08
    What are the advantages and disadvantages of acquisition vs
    developing in-house capabilities?

    Advantages Flexibility to choose the equipment with higher efficiency

    Reduced dependency on the external suppliers

    Ability to match the supply with demand

    More control on the supply chain

    Disadvantages Higher setup time because of new installation, testing, hiring and training of staff

    The inhouse consideration (4 molding presses) is according to current demand which can
    change in the future

    Increased Operating cost (Allowance for consulting engineer)


    What is your recommendation to Bergerac systems?
    Recommendation –
    To exercise the “Buy” option and merge Established relations with the GenieTech for
    with Genie Tech the ongoing business

    Lower payback period as compared to


    “Build” option

    Additional capacity of 8 molding presses can


    be utilized for outside contractual business

    GenieTech’s technical expertise in the form


    of experienced labor force can be utilized

    GenieTech’s clients would provide additional


    revenue

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