Bergerac Systems: The Challenge of backward Integration
Bergerac Systems: The Challenge of backward IntegrationGroup
2Aravind MahendranAkshat PaliwalRaja siva Sampath KoraDivya
JhambSasank LoyaMarket Overview- Pet DiagnosticsIncreasing pet
ownershipHumanization leads to willingness to paySupply side
improvement in diagnostic equipment's for pet careIn House lab
equipment and point of care testing reduced diagnostic time for
both doctors and pet ownersOverview of Bergerac SystemsFounded in
2001Diagnostic Equipment focusing on household petsFirst product,
HemaVueAlso added a line of disposable test kitsIn mid 2006,
Omnivue LaunchedIn 2013, Forecasted launch of Omnivue MobileOmnivue
FeaturesSimple to useLess physical footprintHighly accurate test
resultsReference lab ( quality and accuracy)Competitive pricing (
$9,500 for instrument and $9.25 for test cartridges)750 units sold
in 1 year and expected sales of 7,500 units at end of 2010
CompetitorsIdexx Lab- Industry leader, Dx Chemsitry analyser for
high end and high volume analysisAbaxis Inc- Second position,
Vetsca VS2, cost effective and old disganostic technologyHeska
corporation, Low Quality and less innovative productsProduction
ProcessTwo stage production- Instrument and cartridgeInstrument:
Assembly line, Extensive quality testing and FDA regulations.
Cartridge: Two injection moudled plastic pieces ( base and cover),
needs sterile clean room, Chemical reagents comes form dozen 3rd
party chemical suppliers. Currently manufactured by GenieTech (3/4)
and Elsinore Plastics(1/4)Problems in cartridge productionPlastics
depend on varying petrochemical pricingLess margin vendors waits
for low petrochemical price for manufactureOften delays the
deliveryBergerac needs to stake up huge inventory due to unreliable
3rd party suppliersBergerac recently faced shortage of supplies
from both vendors, leading to delay in final equipment manufacture.
Not able to keep promise on delivery date to customer. No control
over the supply of plastics piecesDecision Making- Make vs BuyBuy:
Merger of Genie TechPrice: $5.75 millionSpec: 8 molding press each
with 10 cavity molds with operating time 75 second cycle
timeRequirement Spec: 90% uptime, 3 shifts per day and 5 days in a
week with 4 molding press meets demand of BergeracRest can be used
for other businesskey advantage- Experienced labor force, Reduced
manufacturing heads ( 26 cents per cartridge unit) and pay back
period 5 years
Decision Making- Make vs BuyMake-Spec- 4 molding unit, 70
seconds cycle time, 95% uptime, raw material savings Savings of 57
cents per cartridge and payback period of 16 monthsInitial setup
for installation, testing, hiring and training of additional staff
required. Was Mccarthys case convincing and timing right?Output=
4687500Production time (24*5*52)=6240 hrs = 374400 min=22464000
secondsBuy: 75 seconds cycle time, 10/2 =5 cartridge at one cycle,
4 molding press with 0.9 up time. Desired cycle time= production
time/desired units of outputCd=22464000/4687500=4.79232Actual cycle
time = ca= 75/(5*4*0.9)= 4.16Make TimingsOutput= 4687500Production
time (24*5*52)=6240 hrs = 374400 min=22464000 secondsBuy: 70
seconds cycle time, 10/2 =5 cartridge at one cycle, 4 molding press
with 0.95 up time. Desired cycle time= production time/desired
units of outputCd=22464000/4687500=4.79232Actual cycle time = ca=
70/(5*4*0.95)= 3.684
Will backward integration helps Bergerac ?Yes, it helps to
eliminate the supply side problems Do he have the managerial
resources to handle such a move?No, he dont have managerial
resources to handle to move, he needs to hire for experts in
cartridge production. What was the long term decision for the
company?In long-term, Backward integration helps to produce
cartridges In time for delivery of instrument.
