Case 8-2

Ohio Plastics

Ohio Plastics (OP) is an extruder of plastic sheets of varying color and size that are sold to engraving and business promotional firms who make signs, name tags and award trophies from the plastic sheets. OP is well known in the industry for making a high-quality product and for providing quick response times for orders. In 2003 OP had 75 percent of the U.S. market for plastic engraving sheets. During the last half of 2003 OP sales declined. Discussions with OP’s major distributors and engravers revealed a softening of demand for engraved items, and the outlook for 2004 was a further reduction in sales. To counter the U.S. market decline, OP began to sell its products in Mexico in August 2003. OP signed agreements with distributors in Mexico City, Monterrey, and Guadalajara. During the first 6 months distributors in these Mexican cities had double-digit monthly sales increases. However, during the first quarter of 2004, monthly sales increased at a slower rate. Discussions with the Mexican distributors indicated the lead time for shipments had increased to 7 days from the 4-day norm during 2003, and the consistency of the transit time had dropped to 70 percent. This longer, less consistent lead time for shipments resulted in frequent stockouts and lost sales. Because OP did not have brand recognition in Mexico, the Mexican engravers would buy other brands from the distributors. Thus OP incurred the lost sales while the distributors substituted other brands to meet their engraver demands. OP initiated a study of the transportation process to Mexico, and the results are presented below:

 The sheets are picked up by CBN Trucking at OP’s Ohio plant and transported to its terminal in Laredo, Texas.

 When the shipment arrives at CBN’s terminal, CBN calls BCJ Forwarding and Brokerage and notifies it that a shipment has arrived.

 BCJ Forwarding will not arrange for pickup until after the shipment arrives at CBN’s terminal. BCJ will not prepare the Mexican import documentation until it inspects the shipment, assures the payment of the correct Mexican import duties, and prepares the correct Mexican documentation. Mexican law places the burden for any errors in customs duties owed to the Mexican government on the broker, not the shipper or consignee.

 After being notified of the shipment arrival at CBN’s terminal, BCJ prepares the Mexican import document, the pedimento, and files the export declaration with U.S. Customs.
 BCJ then contacts a local drayage company to pick up the trailer at CBN’s terminal and transport it to the Mexican customs area. The drayage company has the required documentation for Customs clearance.

 After the shipment clears Mexican Customs, the trailer is delivered to CBN-Mexico, a subsidiary of CBN Trucking. Because the trailer contains OP orders for all three Mexican distributors, CBN-Mexico operates a dropship operation, stopping at each of the three distributor locations.

 CBN does not use its tractors to haul the trailer across the bridge into the Mexican Customs area because of the long time required (a tractor can make one trip per day) and the lower Mexican driver wage.

Case Questions:

1. Outline the steps in OP’s Mexican transportation process.

2. What changes would you recommend to reduce overall transit time?

3. What recommendations would you make to improve the shipment transit time consistency?