Exploring Nearshoring in Mexico

Paul McDonald

Paul McDonald

Mexico has become the destination of choice for many companies looking to benefit from its vastly improved infrastructure; increasingly skilled labor force; its proximity to the United States, as well as all Central and South American countries; and rapidly improving economic growth. Coinciding with Mexico’s rise as an attractive target for industrial opportunity are the problematic issues of escalating manufacturing costs and lengthy shipping lead times facing businesses located in many Asian countries. Recognizing Mexico’s vast potential as an industrial market, and discouraged by the increasing barriers to productivity they are experiencing in Asia, more and more companies are looking to reduce production costs and increase supply chain efficiencies by nearshoring.

An Advantageous Environment
The benefits of moving a business to Mexico extend beyond its geographical location and improving economy. Vast tracts of developable and affordable land are available in prime locations. Building in these strategically advantageous areas will serve to further shorten shipping lead times.

The Mexican government has invested significant amounts of money in improving the country’s railroads, seaports, roads and bridges, and has expanded its efforts to decrease crime, especially in major urban areas. Additionally, Mexico boasts an increasingly skilled and educated workforce, while at the same time offering labor costs that are substantially lower than competing countries.

Mexico also has a liberal trade agreement policy, and in an effort to boost foreign investment, it has created programs designed to reduce or eliminate a variety of taxes, including import, value-added and customs operation taxes.

To further Mexico’s emergence as a major player in the world market, and to make certain it experiences this potential growth effectively, it needs to ensure that it can deliver a reliable, responsive and resilient supply chain. It’s vital that both the businesses considering relocation to Mexico and the Mexican government remain cognizant of the nearshoring trends and the challenges that are going to be placed on the Mexican infrastructure over the next decade.

An experienced third-party logistics (3PL) provider has the ability to recognize the trends around nearshoring, understand the significant pressure it’s going to put on the country and mitigate the risks involved by implementing a solid plan driven by Lean.

Visibility and Compliance Cautions
When considering the end-to-end supply chain components, visibility becomes the key issue. 3PLs have the regional knowledge and expertise to prevent “black holes” along the supply chain. Focusing on the mantra “You can’t manage what you can’t see,” a 3PL that drives true Lean value through a Lean core foundation creates a supply chain strategy that addresses all visibility issues.

Areas of emphasis in the supply chain would include in-transit visibility for all inventories, from point of origin to final destination, information concerning production status, including projected inventory at destination distribution centers as well as accurate ETAs and data that would allow for easy comparison of expected performance to actual performance.

This visibility results in the elimination of the “black holes” and “blind spots” along the end-to-end supply chain. It also helps identify and eliminate delays and wasteful processes before they become problems, thereby increasing profitability.

Another serious issue facing businesses in Mexico concerns workforce culture and experience. How can a business ensure that the workforce it hires in Mexico to support its network can apply its strategies and procedures, and that all elements of this local team — drivers, warehouse workers, etc. — can handle the particular demands required by the company? As with managing any local workforce, a 3PL with regional knowledge, experience and expertise can effectively partner with the manufacturer to provide a workforce possessing the skills that meet the specific and unique needs of each business. A 3PL with Lean as its core foundation ensures that employees are accountable for process compliance, and is a critical component in driving a continuous improvement roadmap for these companies.

Liability Awareness
In Mexico, liability is a challenge. It’s difficult or impossible for a customer to get adequate liability coverage for theft or any kind of loss. An experienced 3PL will offer a proven network that includes transportation and a variety of services that help a customer with the risks associated with liability. A company that sources to a 3PL that offers this complete network of services will greatly reduce its risk of loss exposure from lack of coverage.

Ultimately, there is more work to do to make sure that Mexico is in a position to satisfy the ultimate customer in the end-to-end supply chain. Businesses that relocate in Mexico must be able to satisfy their customers, and they can’t do that if Mexico is unable to service these businesses.

As Mexico continues to grow as an attractive and enthusiastic destination for companies seeking alternatives to overseas locations, partnering with a regionally savvy and experienced 3PL will become an even more desirable option. The output of a 3PL that can drive true Lean value is process, rigor, continuous improvement, technology enhancement, visibility and the ability to respond with resilience at all points along the supply chain, all necessary components in achieving nearshoring success in Mexico.

 

Paul McDonald is Director of Business Development at Menlo Logistics. Named to his current position in 2008, McDonald is responsible for sales and marketing activities in Menlo’s Automotive and Heavy Industrial Group.

Rafael Solis is the Senior Regional Business Director for Menlo Logistics, specializing in design, execution and delivery of integrated customs and trade solutions that enhance supply chain management programs