Bergerac Case Study

Bergerac

In order to meet future demand in the face of high economic uncertainty in the plastics market, Bergerac needs to identify the best course of action for manufacturing its cartridge units. Three options were evaluated; utilizing an outsource strategy, vertically integrating manufacturing in order to produce the units in-house, or purchasing GenieTech. After analyzing Bergerac’s process type, looking at the financial data between the buy and build strategies, and evaluating the outsourcing option, I recommend that Bergerac outsource manufacturing. Bergerac could continue its dual sourcing strategy with GenieTech as its preferred supplier. Due to Bergerac accounting for 50% of GenieTech’s production, it shouldn’t be too hard to negotiate a new, lucrative contract. This way, Bergerac could still maintain its preferred supplier relationship with GenieTech where it continues to receive manufacturing preference. This could possibly result in lowered transportation and unit costs. At the same time, Bergerac can hedge its risks by keeping its relationship with Elsinore active. This also mitigates problems which could arise from any internal problems specific to GenieTech.

Insourcing offers many attractive benefits. For one, Bergerac would be able to have complete control over the cartridge manufacturing process. This would minimize the potential for shortages in the future. The payback period is short and the initial investment is much less than purchasing GenieTech. If Bergerac could use its Parsippany plant then this option would not have added property costs. The financial projects look good but there is no best case, base case, or worst case scenarios so it is difficult to plan based upon just the financial data. This strategy is not a good fit for Bergerac. First, manufacturing is not one of Bergerac’s core competencies and it would be in danger of facing a decrease in productivity due to inexperience in manufacturing. Furthermore, capacity utilization might not be high enough to achieve efficient productivity when considering purchasing raw materials. There will also be unforeseen costs related to the time necessary to learn the manufacturing process and develop a system to recognize and remedy inconsistencies. Process optimization in the future would also be expensive for Bergerac as the equipment would need to be routinely upgraded.

Purchasing GenieTech would also come with its own set of problems. This option is very costly and has a fairly long payback period of 5 years. This would leave Bergerac low on available cash which would make it hard to remain flexible in the face of a changing industry. A batch production line process type is not very flexible. This would make it expensive to use the equipment to produce items for outside businesses. Since only 50% of GenieTech’s sales are attributed to Bergerac, the other 50% would require quite a bit of work to accomplish. Even