5 factors to consider when nearshoring

November 26, 2013

China's wages have been on the rise for some time, and many manufacturers are choosing to move their production processes out of the country as a result. With China's long, inflexible supply chains and rising higher wages, it is no longer a viable offshoring option for many manufacturers. Companies are preparing to bring back their production processes from China, but reshoring might not be the optimal solution. In an article for Industry Week, John Mills, executive vice president of business development at Rideau Recognition Solutions, gave some tips for manufacturers looking to increase the capacity of their current North American facilities. While upping current plants' capacities in Canada and the U.S. could help manufacturers bring the fabrication and assembly processes back to North America, doing so can strain existing facilities' operations and staff.

The advantage of offshoring to Mexico
As more Canadian and American businesses come back to North America, some still aren't able to keep their entire manufacturing processes in Canada and the U.S. Manufacturing in Mexico allows companies to gain the cost savings of offshoring while maintaining the benefits of North American manufacturing. Many companies depend on offshore manufacturing to streamline costs and maintain product quality. With its close proximity to the U.S., high quality labor at affordable costs and adaptable supply chains, expanding to Mexico is often the best solution for the majority of North American manufacturers.

Scott Sneckenberger, partner of global services for business consulting firm Plante Moran, told Plastics Today more manufacturers are taking the leap to produce in Mexico.

"If you look at just the unit price Mexico would be more expensive, but looking at the total cost there's an advantage now," Sneckenberger said. "Companies are getting smarter. They're looking at three-five days on a truck from Mexico versus weeks on a boat. We're definitely seeing a growing trend toward Mexico."

Businesses can still use some of Mills' tips, as well as others, to adequately prepare to nearshore their operations. Each of these five business factors ensure the company is ready to move the production process from China to Mexico:

1. Conduct productivity testing
Many manufacturers won't offshore to another country unless their current operations are optimized. Mills suggested companies try higher-volume runs and provide additional training to existing staff. This can show the facility might not be able to increase capacity and another plant is needed. According to an article for CIO Insight by John Parkinson, senior vice president of the project management office for Axis Capital, companies need to adapt their capacities to the scale they need in order to deliver the correct number of goods. Many Canadian and American factories cannot afford to expand and halt certain areas of production until they are ready to supply more products. Testing can show leaders that nearshoring is the best option.

2. Leadership communication
Management must be on board with the move to Mexico. Communication between key personnel can make or break nearshoring.

3. Focus on suppliers
Some manufacturers might want to stick with their current suppliers when offshoring to Mexico, so it's important to maintain strong communication with suppliers. Many companies choose to build relationships with new manufacturers in the country. Either way, being aware of options is important. 

4. Prepare for culture barriers
Despite their close proximity, Mexico's culture differs from Canada and the U.S. According to Parkinson, companies need to be aware of any language challenges and even business culture differences. Understanding Mexican professionals have their own way of doing things and how the Mexican workforce responds to certain management styles is important.

5. Partner with a shelter company
Offshoring to Mexico is not the same as offshoring to China, and many companies may require shelter company assistance to do so successfully. Experienced shelter companies can ensure manufacturers don't miss any aspect of the expansion process and help businesses hire and pay their Mexican workforce.

The Offshore Group: You Manufacture ... We Do The Rest


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