Bergerac Systems: The Challenge of backward Integration Group 2 Aravind Mahendran Akshat Paliwal Paliwal Raja siva Sampath Kora Divya Jhamb Sasank Loya
Market Overview- Pet Diagnostics • Increasing pet ownership • Humanization leads to willingness to pay • Supply side improvement in diagnostic equipment's for pet care • In House lab equipment and point of care testing reduced diagnostic time for both doctors and pet owners
Overview of Bergerac Systems • Founded in 2001 • Diagnostic Equipment focusing on household pets • First product, HemaVue • Also added a line of disposable test kits • In mid 2006, Omnivue Launched • In 2013, Forecasted launch of Omnivue Mobile
Omnivue Features • Simple to use • Less physical footprint • Highly accurate test results • Reference 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
Competitors • Idexx Lab- Industry leader, Dx Chemsitry analyser for high end and high volume analysis • Abaxis Inc- Second position, Vetsca VS2, cost effective and old disganostic technology • Heska corporation, Low Quality and less innovative products
Production Process • Two stage production- Instrument and cartridge • Instrument: 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 3 rd party chemical suppliers. • Currently manufactured by GenieTech (3/4) and Elsinore Plastics(1/4)
Problems in cartridge production • Plastics depend on varying petrochemical pricing • Less margin vendors waits for low petrochemical price for manufacture • Often delays the delivery • Bergerac needs to stake up huge inventory due to unreliable 3 rd party suppliers • Bergerac 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 pieces
Decision Making- Make vs Buy • Buy: Merger of Genie Tech • Price: $5.75 million • Spec: 8 molding press each with 10 cavity molds with operating time 75 second cycle time • Requirement Spec: 90% uptime, 3 shifts per day and 5 days in a week with 4 molding press meets demand of Bergerac • Rest can be used for other business • key advantage- Experienced labor force, Reduced manufacturing heads ( 26 cents per cartridge unit) and pay back period 5 years
Decision Making- Make vs Buy • Make• Spec- 4 molding unit, 70 seconds cycle time, 95% uptime, raw material savings • Savings of 57 cents per cartridge and payback period of 16 months • Initial setup for installation, testing, hiring and training of additional staff required.
Was Mccarthy’s case convincing and timing right? Output= 4687500 Production time (24*5*52)=6240 hrs = 374400 min=22464000 seconds Buy: 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 output Cd=22464000/4687500=4.79232 Actual cycle time = ca= 75/(5*4*0.9)= 4.16
Make Timings Output= 4687500 Production time (24*5*52)=6240 hrs = 374400 min=22464000 seconds Buy: 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 output Cd=22464000/4687500=4.79232 Actual 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 don’t 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.
