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DECEMBER 14, 2011

DAVID A. GARVIN
SUNRU YONG

Introduction

op yo Bergerac Systems:
The Challenge of Backward Integration

In July 2010, Ian Wyckoff, CEO of Bergerac Systems, scribbled a few notes about his latest meeting with a group of veterinarians. These were his customers, and they provided direct feedback on their latest experiences with Bergerac’s diagnostic instruments for animal care. The feedback was always valuable, although on this visit it was not entirely positive.

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The customer feedback was fresh in Wyckoff’s mind as he returned to the proposal he had started reviewing that morning. It summarized the “make vs. buy” analysis for OmniVue cartridges conducted by his director of planning, Bob McCarthy. McCarthy recommended that Bergerac build a cartridge fabrication unit within its own plant rather than acquire GenieTech, one of the company’s two current cartridge suppliers.

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The decision between in-house development and external acquisition was critically important.
Bergerac was growing fast—averaging 17% annually since 2007—but it remained a small player with limited resources in a very competitive market, and Wyckoff was determined to avoid a costly mistake. He had to make a decision quickly, as the supply of OmniVue cartridges had been inconsistent in recent months. Indeed, the veterinary practice that Wyckoff had just visited had recently been frustrated by a temporary stock-out at their distributor. To maintain Bergerac’s growth trajectory, it was imperative for potential customers to have full confidence in the company’s ability to deliver on its promises. Furthermore, the contract with the other cartridge supplier, Elsinore
Plastics, would come up for renegotiation in August 2010—a mere three weeks away.

Market Overview: Evolution of Pet Diagnostics

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In 2010, veterinary