Simplifying SCM with Proximity and Flexibility
There's ample reason Mexico is increasingly becoming a solution for manufacturers seeking to improve supply chain management. As global supply chains struggle to emerge from a few tough years of disruption, many companies find that proximity to the U.S. provides flexibility and simplifies many of the logistical challenges in reaching one of the world's largest markets.
While reshoring, or returning manufacturing to a company's home country, has been much discussed, nearshoring tends to emerge as a more economically prudent decision quickly. By moving manufacturing to a low-cost country closer to the corporate headquarters, companies can realize the advantages of offshoring while reducing risk and simplifying supply chain management.
Proximity supports flexibility
Hands-down proximity to the massive U.S. market is one of the chief benefits of manufacturing in Mexico—for both U.S.-based companies and other foreign direct investors. MoverDB reports that the cost of shipping a 20-foot container from Mexico to Los Angeles averages about $475, compared to $706 from the Philippines or over $1,000 from Bangladesh, making it a far more cost-effective solution for shipping goods.
While this certainly presents a strong case for Mexico's cost savings, SDC Executive adds another factor to consider for supply chain management. As global trade continues to increase and more countries seek to export goods to global markets, the movement of goods is adding tremendous pressure to existing port infrastructure. This growing volume has led to capacity issues at many ports, causing some companies to work to reroute inbound shipments to smaller ports at potentially higher costs. Companies transporting goods out of Mexico, of course, have significantly more options for product delivery—think truck, rail, air, and ship—and can easily adapt to ensure the lowest-cost transport option.
Reto Malfatti, managing director for Mexico at transport company Kuehne + Nagel, echoed that sentiment in an interview with JOC.com. He noted that customers seeking transport options are increasingly looking at Mexico as an option for shipping goods into the United States. Its proximity to one of the largest trading countries in the world has given Mexico a reputation as "a gateway to the U.S." for businesses from many nations. It's a reputation further upheld by the nation's numerous free trade agreements—more than any other country.
Dense economic clusters add options
Mexico's long history as a manufacturing powerhouse also means that several industries have had decades to add density to their supply chains. The automotive manufacturing industry is perhaps the most remarkable example. Automotive clusters can be found throughout the country, supporting Mexico's 30 automotive OEM assembly plants with hundreds of Tier 1, 2, and 3 suppliers. These suppliers are in turn supported with infrastructure that includes technical training to support the evolving needs of this manufacturing base.
That said, Greg Laskey, vice president of purchasing for Toyota North America, has noted that automotive suppliers hoping to move into Mexico to support these OEM will find there's still plenty of need for suppliers that are able to prove they can offer "sustained competitiveness." With the USMCA now ratified, requiring a greater percentage of automobiles to include North American content, there's even more need for part and component suppliers to move into the market. As more parts suppliers move into Mexico, downstream players may be able to simplify supply chain management through easier access to partners.
Mexico has also rapidly grown its aerospace manufacturing cluster, producing every component needed for commercial, private, and defense aircraft. The Mexican Federation of the Aerospace Industry (FEMIA) ranks Mexico as the 12th largest aerospace manufacturing country, but it has grown steadily over the last two decades rapidly. In 2019, Mexico counted more than 350 suppliers serving the aerospace manufacturing industry. While this industry has faced some turbulence as a result of the COVID-19 pandemic, Felipe Sandoval, president of FEMIA, has noted that this is only more likely to urge manufacturers to turn to Mexico as a solution for restructuring their supply chain. According to Sandoval, Mexico offers the competitive cost, technically skilled labor, and excellent logistics that will be necessary to reinvigorate production in this industry.
One of the critical keys to effective supply chain management is Communication. While supply chain digitization is increasingly critical in getting ahead of potential issues, there are times when to get an answer; you need to be able to quickly get on the phone or get to the site of the problem.
As Mohamad Moussa, a Senior Director of Supply Chain for logistics company Flex Ltd., told EMS Now, "Communication is always important, but it plays a more critical and urgent role during a crisis to align on the many actions needed to bypass the challenges. Frequent three-way discussions between the factory, the supplier, and the customer are needed."
The fact that Mexico operates in the same time zones as the U.S. greatly simplifies Communication compared to other low-cost manufacturing countries. Should an issue or concern arise, it's also easy to hop on a brief flight to get straight to the source of the problem.
If there's one thing that will be on the mind of most manufacturers eyeing their supply chains in the years ahead, it's resiliency. With easier Communication and access to supply chain options, manufacturers can better stay ahead of challenges and confidently ride out disruptions.
While Mexico presents a strong option for OEM and other manufacturers looking to maximize cost savings through nearshoring, it also provides an opportunity for suppliers looking to build relationships with these big-name players. With the right location near the economic cluster, your products are meant to serve, it's possible your company could better leverage its expertise to become the go-to option for a manufacturing powerhouse.
If you're ready to find the right site to support your launch into Mexico, contact Tetakawi today.