Supply Chain Management for Lorenza Polymer Sand Company's Expansion into the US Market

Overview of Lorenza Polymer Sand Company

Lorenza Polymer Sand Company (LPS) has been in business for 25 years producing a specialty polymeric sand used by Contractors and Do-It-Yourself (DIY) homeowners in the installation of stone patios, walkways and driveways in Canada. LPS is headquartered in Montreal QC and operates with production and their head office in a single location on the south shore of Montreal.

Polymeric sand is a coarse sand that contains polymer compounds that when mixed with water, seals the joints between stones (much like the grout used on typical ceramic and porcelain tiles). The sand is brushed between the stones where water is then applied. The sand takes approximately 18 hours to properly cure (at 20 degrees Celsius) and should then last up to five seasons without significant degradation. LPS provides a five year guarantee on the product'and has receives only minimal warranty claims each year — less than i% of total pounds sold.

A major United States (US) competitor has ceased producing the sand for Hayward Home Centers in the US and LPS believes this is a unique opportunity to expand into the US market. Hayward's has approached LPS about supplying their locations after seeing LPS at an industry conference in Atlanta GA approximately six months ago. LPS has actively been soliciting potential customers in the US for two years and Hayward's is the first potential customer for their US expansion. 

Hayward's is a well established DIY and Contractor retail supply chain. They are located in the Southern US with fourteen physical store locations in MS, LA, GA, FL, and TN. Hayward's Distribution Centre (DC) is located in Baton Rouge LA. All inbound product flows through the DC for deconsolidation and distribution to their store locations. Hayward's has strict policies on potential terms of sale — all goods purchased by Hayward's is required to travel as either FOB, FCA, DDP or CIP. 

The sand is packaged in 25 kg plastic bags. For shipping, the bags are loaded onto a scrap 48 x 4o inch wooden pallet. 24 bags are loaded onto each pallet and this is considered the minimum order quantity for all customers. The empty pallet weighs 6o lbs. As a part of the agreement Hayward's, LPS will be required to add one additional 25 kg bag of sand per pallet at no charge to account for damages anticipated during transit and handling at each store. In exchange, LSP will not receive any product returns unless there is significant damage to the entire pallet of product —at which time it would be refused at Hayward's DC on receipt. Hayward ships exclusively on road carriers and anticipates keeping this transportation strategy for US shipping.

The Opportunity: Expanding into the US Market with Hayward Home Centers

Hayward's had been purchasing approximately 115 million pounds per year of sand (from their previous supplier). Hayward's anticipates this volume to remain fairly constant. Unlike Canada, itlie demand has very little fluctuations by month or season in the Southern US.

The sand is minded in the Easten Townships of Quebec and all of the polymer additives are New Brunswick. All materials contained in the sand (mined or purchased- including the packaging) have Canadian certificates of origin.

LPS has not shipped into the US before and has hired you as a consultant on the supply chain team. You are an independent consultant with years of experience in North American transportation and came highly recommended by the CITI to the President of LPS. for this of project. You have been hired to specifically provide a detailed report on the following areas o concern to LPS regarding the upcoming US expansion. 

1. Hayward's has specified potential terms of sale that may be used. LAPS requires you to analyze the options and provide recommendations to LPS on which incoterm should be used for this venture. Your analysis must include a detailed report of the risks and responsibilities specific to both Hayward's and LPS.

2. LPS understands that shipping to the US involves satisfying obligations to both Canadian and US governments. You are required to prepare a customs compliance plan that includes details on LPS's responsibilities and recommendations on how to satisfy these responsibilities including the opportunity for participation in any available tariff treatments such as free trade agreements. Your recommendation must also address the customs brokerage. Should the process take place using in-house staff or should it be done by an outside customs broker? Explain your decision in detail, including the role and function of the customs broker. 

3. As a part of the agreement with Hayward's, LPS is required to keep the equivalent of 5o% of each month's forecast in a safety stock and must be able to deliver product to the DC within 8 hours of order receipt. Due to the location of LPS's office in Montreal this is not feasible and LPS must find a storage solution in the US. Several small buildings are available for lease within the Baton Rouge area at rates that are slightly less than the overall cost of public warehousing. You are asked to provide a recommendation on the operation of a private warehouse or the use of public warehousing for this venture. LPS is seeking additional customers in the Southern US region that they could potentially supply from this warehousing location.

4. Samples of the product were shipped three months ago to Hayward's as a part of their quality and vendor testing process. Upon receipt, sand was believed to be leaking from one or more of the bags. It was not determined where in the shipping process (packaging, handling or transport) the damage was occurring. To be compliant, LPS is required to put in place a program that will eliminate the damage entirely. Hayward's has advised LPS that any pallets discovered leaking upon receipt at the DC in Baton Rouge will be refused. If more than five shipments are refused for leaking within a three-month period, Hayward's will begin to deduct 10% from each invoice until no leaks have been detected for a further 3o days. You are required to prepare a damage prevention plan to address the leaking pallets. Your plan must be detailed enough to satisfy the President of LPS that damages will be eliminated as required.