Bergerac Systems: The Challenge of Backward Integration

By: Sunru Yong and David A. Garvin

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Synopsis: Bergerac Systems is a small, rapidly growing manufacturer of diagnostic instruments used in veterinary practices. The company introduced the OmniVue chemistry analyzer, which enables veterinarians to run a wide range of blood and blood chemistry tests on their animal patients in the office instead of sending them to outside laboratories. OmniVue is easy to operate and produces highly reliable results using a proprietary cartridge for holding the blood specimen during the analysis. Sales of these single-use cartridges are an important part of the revenue stream for the product line. The firm relies on two outside suppliers for the plastic components of the cartridges. The CEO is concerned about inconsistent delivery from the cartridge suppliers which have resulted in shortages and stock-outs. To address the supply chain problems, the CEO considers acquiring one of the suppliers, GenieTech, while the director of planning proposes building the required capabilities within the company's existing manufacturing facilities. Students must perform a quantitative and qualitative analysis of a "make vs. buy" decision while considering expected production capacities, market forecasts, and the company's overall sourcing strategy.