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Transcript of Bergerac Systems
Do you agree with his analysis and assumptions?
I agree with his analysis that Bergerac should build a cartridge fabrication unit within its own plant except for the fact that
the founder and owner are both interested in retirement. There is still uncertainty if the purchase will take place
Bergerac should build in-house capability to produce cartridges.
- More control over supply chain – guaranteed supply of cartridges and ability to react quickly to fluctuating customer demand.
- Easier to align resources across the value chain.
- Newer machinery, less maintenance, faster production times.
- Produce cartridges cheaper & faster than Genie Tech.
- Save on transportation costs.
- Return on investment is 1.5 years instead of 5.
- Increased flexibility in production allowing for Bergerac to react quicker to market changes.
Challenge - Whether to buy or build the plastic components of the OmniVue cartridges?
"Buy" Decision: Acquire Bergerac's supplier, GenieTech, for $5.75 mil
Gain 8 molding presses
Gain experienced labor
Lower costs by $.26/unit
Payback = 5 years
"Build" Decision: Make the plastic pieces at Bergerac's Parsippany plant
Only make the required 4 molding presses to satisfy current needs
Acquire newer machinery with shorter cycle time & more efficient use of raw materials
Lower costs by $.57/unit
Payback = 16 months
Intangible Costs of a "build" decision
Inexperience may lead to a decrease in productivity
No access to specialized knowledge for better innovation
Capacity utilization may not be high enough or may be too low for efficient productivity
The time needed to learn the process and fix mistakes can be costly
Would you suggest Wckoff to accept MacCarthy’s analysis?
We will suggest to Wckoff that he accept MacCarthy's analysis,
Intangible Costs of a "buy" decision
Interpersonal relationship problems between old and new staff may develop.
Although the acquisition would come with a supervisor, inexperienced oversight and management may deteriorate the value and productivity of the company
Ability to invest in other growth opportunities will decline since operating capital will be tied up in the production activity of the new company
Difficult to reverse
Buy? Build? Other decision?