Bergerac Systems - the Challenge of Backward Integration

Bergerac Systems: The Challenge of Backward Integration

Group 5: Ashutosh B16013 | Narasimha B16028 | Pulkit B16035 | Sahil B16041 | Samiksha B16042 | Sharodiya B16046

PROBLEM STATEMENT

The management of Bergerac is planning to take control over its suppliers to reduce the production fluctuation and overhead costs of the firm. There are two strategic alternatives for the company to implement its future plans. It can opt for “Buying” out its supplier thus integrating backwards or by building it “Making” their own plastic components in their plant.  

ANALYSIS

1. Operational Analysis

We have performed a financial analysis of the two alternatives to pick the best choice.

Utilization of the capacity of the choices is dependent on the number of moulds, cycles per shift, uptime and cartridges per shift. It turns out to be 46% for buy decision and 81% for In-house decision at the end of the first year. This shows that with in-house manufacturing scope of expansion is not much, whereas the buy decision will provide flexibility to easily scale up operations and meet the changing needs.

One of the biggest advantages to buy is that we have an established network of distributors to sell the cartridges as there is over capacity initially. We are better equipped to deal with Petrochemical price fluctuations as we have stable partners.