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Bergerac D3D3D3Systems: The Challenge of Backward Integration
Bergerac D3D3D3Systems: The Challenge of Backward Integration
INTEGRATION
Q1.
Operational Challeng33ddes
• Supply iss3d3d3d3ues: The company has been facing supply issues due to projected increase
in demand between 8 to 10% annual growth
• Capacity Cd3d3donstraint: Bergerac was capacity constraints due to the increase in demand
for its products wwwxwxsachich was growing continuously. Looking for expansion
• Unreliability of Suppliers: The simultaneous delays from both plastic parts suppliers led to a
shortage of final prodddduct
Business Challenges
• The market was very competitive for veterinary diagnostic instruments market and faced
stiff competition from Idexx Laboratories, Abaxis Inc. and Heska corporation
• The company remained a small player and hence was looking for opportunities to capture a
wider share of market
• Although Bergerac was growing fast averaging 17% annually, to maintain its growth
Trajectory it was important to build credibility among its consumers
• Bergerac needed to revamp its supply chain strategy in order to improvise its entire supply
chain
Q2.
Genietech
Labor- cartridge Remarks
Production co-ordinator, 3
Supervision $ 2,36,500.00
foremen
Direct/Indirect labour $ 2,60,700.00 12 machine operators @$22K
benefits and taxes $ 6,46,400.00
Total $ 11,43,600.00
RM costs - cartridge
Cost per pound, delivered $ 2.45
Yield (RM pounds per 1000 units) 320
Considering 8 presses are in
Total cartridge (units) 9375000
operation
Pounds per annual demand 3000000
Total $ 73,50,000.00
Labor and RM - reagents
Avg cost per cartridge $ 1.15
Considering 8 presses are in
Total cartridges (units) 9375000
operation
Total $ 1,07,81,250.00
Overhead
Rent/floor space $ 2,55,000.00
Depreciation $ 3,15,400.00
Utilities $ 4,82,400.00
Insurance (equipment) $ 54,900.00
Repairs & maintenance $ 2,13,200.00
Maintenance, repair & Ops supplies $ 1,08,900.00
Variable overhead $ 3,29,700.00
Total $ 17,59,500.00
Contingency $ -
Annual operating cost $ 2,10,34,350.00
Cost per unit $ 2.2437
transportation + fuel charges $ 0.15
Total $ 2.394
Current cost per unit $ 2.96
Savings per unit $ 0.57
Annual savings @ current
$ 53,09,400.00
production
Capital requirements $ 57,50,000.00
break even volume 10152983
Annual production volume 9375000
Payback period (years) 1.08
In-house
Labor- cartridge Remarks
Supervision $ 2,42,100.00
Direct/Indirect labour $ 2,30,500.00
benefits and taxes $ 6,14,400.00
Total $ 10,87,000.00
RM costs - cartridge
Cost per pound, delivered $ 2.45
Yield (RM pounds per 1000 units) 310
Total cartridge (units) 4687500
Pounds per annual demand 1453125
Total $ 35,60,156.25
Labor and RM - reagents
Avg cost per cartridge $ 1.15
Total cartridges (units) 4687500
Total $ 53,90,625.00
Overhead
Rent/floor space $ 1,47,900.00
Depreciation $ 3,78,800.00
Utilities $ 4,11,100.00
Insurance (equipment) $ 32,800.00
Repairs & maintenance $ 57,100.00
Maintenance, repair & Ops supplies $ 45,700.00
Variable overhead $ -
Total $ 10,73,400.00
Contingency $ 90,000.00
Annual operating cost $ 1,12,01,181.25
Cost per unit $ 2.3896
transportation + fuel charges $ -
Total $ 2.390
Current cost per unit $ 2.96
Savings per unit $ 0.57
Annual savings @ current
$ 26,73,818.75
production
Capital requirements $ 36,07,000.00
break even volume 6323470
Annual production volume 4687500
Payback period (years) 1.35
The error in the analysis of buying is that McCarthy did not consider the revenue, or the annual
savings generated from the other 4 moulding presses that could e used for outside business. Hence
taking this into consideration, the production volume goes up by 100% and the payback period
comes down to 1.03 years which is less than that of the In-house production proposal.
Q4.dwdwdwdwdwddwdwdwdwdwdwdwdwdw
Our recommendation is to buy Genietech instead of starting in-house production of cartridges for
the following reasons
50% of Gdwdwdwdwdwdwenietech revenue is from Bergerac and the rest 50% is from
outside business. This 50% revenue from outside business increased the annual savings
hence reducing the payback period to 1.03 years which is lesser than the payback period
(1.35 years) of in-house production
Genietech has the technical expertise, managerial resources and capabilities to handle the
currendwdwdwdwdwdwdwdt production and their future plan of production of small
cartridges for Omnivalue mobile starting from 2013
In the long term, dwdwdwdwdwBergerac can pass the cost reduction benefits to the
customers giving them an edge over the competitors resulting in the increase in market
share
Bergerac systems :