Mexico Manufacturing: Total Costs of Nearshoring Production

September 29, 2011

When manufacturing executives are tasked by their respective boards and ownership to calculate the costs of operating a Mexico manufacturing facility, there is often a tendency to place an undue amount emphasis on the cost of labor.  In addition to the cost of both direct and indirect Mexican labor, there are many items that must be factored into any studies aimed at determining the total “all-in” cost of Manufacturing in Mexico.  Determining the total cost of manufacturing in Mexico should be the goal of any analysis.

Executives must closely examine and estimate the following:

  • Projected customs brokers fees and duties, going both in and out of Mexico.
  • Estimated Mexico freight and transportation costs of shipping inputs and machinery to the plant and shipping finished product to the customer.
  • Possible Mexican employee transportation costs (usually in the form of busing).
  • Depending on the Mexican labor market that the plant is to operate in, the costs of additional benefits paid to employees in the form of monies and/or goods and services.
  • Projected costs of utilities needed to heat and cool the plant and to run lighting and production equipment.
  • Estimated communications costs.  This item includes: telephone, IT infrastructure, Internet access hardware and software.
  • Estimated MRO purchases in Mexico.  These include consumables items that are utilized in the production facility, and may include things like solvents, cleaning materials.
  • Listed price of Mexican industrial real-estate in the market(s) under consideration.

Estimates of the following additional Mexico manufacturing plant cost categories must be examined and calculated:

  • Office supplies such as furniture, paper, computers, etc.
  • Medical supplies that must be on hand in case of accident or injury.
  • Maintenance equipment for the upkeep and calibration of machinery.
  • Cleaning materials for offices, common areas, bathrooms and the shop floor.
  • Travel expenses that accrue as a result of the need to move between various company manufacturing sites.
  • Vehicles that will be required by plant personnel to perform company business.
  • Insurance on automobiles, and on key employees.
  • Rent for a property that may be kept by a company to house visiting customers.
  • Petty cash.
  • Extra pay for special bonuses or early vacation pay.
  • Miscellaneous outside services
  • Garbage collection

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New manufacturers in Mexico also are often subject to the payment of many of the following one-time costs:

  • Water, gas and sewer hook-ups
  • Telephone line(s) installation
  • Electrical hook-ups
  • Leasehold improvements on rented Mexican industrial buildings
  • Installation of time-attendance equipment and payroll and accounting software
  • Customs permits
  • Operating permits
  • Lease documentation

The cost of operating a nearshore manufacturing in Mexico facility is not the function of a calculation of the cost of Mexican labor.  To get the true picture of costs (one that can be compared to what a company is currently paying to produce its product or products) an exhaustive study must be conducted to get accurate information that will create the conditions for optimal decision-making by company ownership.   


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