BERGERAC Presentation By :

SYSTEMS:
Group-3
(Aditya Vats, Kartik Misra,
Sounak Kumar Maity)
The Challenge of
Backward Integration
2 COMPANY OVERVIEW

Manufacturer of Diagnostic instruments used in

veterinary practices

Small yet Fast growing Player in a

competitive market

Main Product is OmniVue

Highly Dependent on its Suppliers

 3 PRODUCT DESCRIPTION - Omnivue

Used at Point-of Enables Delivered high Simple to use Durable Competitively

Care in a Veterinarians to run accurate test priced
Veterinary Clinic wide range results
Diagnostic tests
4 BUSINESS CHALLENGES

 Small player in a competitive market (3 competitors:

Idexx Laboratories, Inc., Abaxis, Inc., Heska
Corporation)
 All competitors are established
 Individual products of each Competitors have their
respective USPs
5 OPERATIONAL CHALLENGES
 Reliance on long term, single source suppliers for
Production
 Injection-molded plastics came from distant
suppliers - Genie Tech and Elsinore Plastics
 Supplier dependent on petrochemicals as key
input which is vulnerable to oil prices and
supplies.
 Demand forecast difficult for plastic suppliers
 Capacity constraints of Plastic Supplier makes
 Response difficult for unexpected demand
spikes
 Leads to occasional production delays
 Bergerac is forced to carry more inventory of
parts and finished goods than necessary
6 QUANTITATE ANALYSIS

 The quantitative analysis done by Mr Ian Wyckoff is

correct.
 Industry analysts projected 8-10% annual growth for the
in-house diagnostics market in North America over the
next 5 years.
 Upon Careful analysis of the production rates (in next
slide)- we have inferred the above statement
 Year 1 Year 2 Year 3 Year 4 Year 5
2010 2011 2012 2013 2014
Demand Forecast of Cartridges 4687500 5156250 5671875 6239062.5 6862968.75

7 Genie Tech
Capacity/Machine((10*0.9*250*24*60*60)/75)) 2592000 2592000 2592000 2592000 2592000
No of machines required 1.81 1.99 2.19 2.41 2.65
Machines Available 8 8 8 8 8
Machine Utilization 22.61 24.87 27.35 30.09 33.10
Total Labour Cost 1143600 1143600 1143600 1143600 1143600
RM Cost - Cartridges 3675000 4042500 4446750 4891425 5380567.5
RM Cost - Reagents 5390625.00 5929687.50 6522656.25 7174921.88 7892414.06
OH Cost 1759500 1759500 1759500 1759500 1759500
Annual Operating Cost 11968725 12875287.5 13872506.25 14969446.88 16176081.56
Annual Savings @$0.257/unit 1204687.50 1325156.25 1457671.88 1603439.06 1763782.97
Investment 5750000
Break-Even Volume 22373540.86
Payback Period 4.773022049

In-House
Capacity/Machine((10*0.95*250*24*60*60)/70)) 2931428.571 2931428.571 2931428.571 2931428.571 2931428.571
No of machines required 1.60 1.76 1.93 2.13 2.34
Machines Available 4 4 4 4 4
Machine Utilization 39.98 43.97 48.37 53.21 58.53
Total Labour Cost 1087000 1087000 1087000 1087000 1087000
RM Cost - Cartridges 3560156.25 3916171.875 4307789.063 4738567.969 5212424.766
RM Cost - Reagents 5390625 5929687.5 6522656.25 7174921.875 7892414.063
OH Cost 1073400 1073400 1073400 1073400 1073400
Annual Operating Cost 11111181.25 12006259.38 12990845.31 14073889.84 15265238.83
Annual Savings @$0.570/unit 2671875.00 2939062.50 3232968.75 3556265.63 3911892.19
Investment 3607000
Break-Even Volume 6328070.175
Payback Period 1.349988304
8 QUANTITATE ANALYSIS
 For next 5-years and down the line, we found that in-house production is
profitable.
Savings
4500000.00

4000000.00

3500000.00

3000000.00

2500000.00

2000000.00

1500000.00

1000000.00

500000.00

0.00
2010 2011 2012 2013 2014
Year 1 Year 2 Year 3 Year 4 Year 5

Annual Savings @$0.257/unit Annual Savings @$0.570/unit

9 ACQUISITION VS DEVELOPING IN-HOUSE
CAPABILITIES

Advantages - utilizing In-House Disadvantages - utilizing In-House

Capabilities Capabilities
- Cycle Time: 70 seconds as compared to 75 -Losing opportunity of Acquiring a probable
seconds in Acquisition competing Company in mould preparation
- Cost reduction by 57 cents/ unit VS 26 cents/unit
in Acquisition -Inexperience in Manufacturing moulds – may
- Payback in 1.3 years VS 4.8 years in Acquisition lead to lower productivity
-No delivery cost
-Capital requirement is less -Unsure about time required for ‘SETUP’ of the
-Faster Production manufacturing unit - may take more to start from
scratch
-Greater machine utilization
10 RECOMMENDATION

 Wyckoff is suggested to accept McCarthy’s

suggestion and build inhouse capabilities to
produce cartridges based on the following
merits :
 No delivery cost
 Capital requirement is less for in-house capability
than acquisition
 More profit/unit
 Faster Production
 Greater machine utilization
 Lesser Payback Time