Discussion Highlights: Finding Mexican Suppliers

February, 2023 Executive Roundtable

Two roundtables were held focusing on the finding capable and competitive suppliers in Mexico. APD shared lessons learned from Mexico sourcing projects over the past 18 months. One topic that came up during discussion was the impact of USMCA regional content requirements. Highlights of the roundtable discussion are summarized below:

• Purchasing Director – Americas for an automotive fluid management and connectors supplier shared that they have found it difficult to find capable suppliers in Northwest Mexico (Tijuana/Mexicali area). Their experience is that the supply base there is focused on supporting the consumer electronics and medical industries. They have found good suppliers in mid-Mexico but transportation is costly – they find that freight is difficult to move directly to NW Mexico, and they have to ship Mexico à Texas à California à Tijuana. They shared a success story where they were able to develop a non-automotive coatings supplier into qualifying for IATF certification. They also shared that the Mexican manufacturing labor rate increases 20 cents/hour late last year.

• Vice President of Purchasing – Automotive for a seating components manufacturer shared that their nearshoring efforts are being driven by two things:
  1. Improving supply chain reliability/reducing supply chain risk – they have mapped their supply chain and identified risks that can be reduced through nearshoring, although sourcing may be more costly
  2. Customer requests – customers believe that localization will bring cost savings and improve sustainability metrics

USMCA regional content requirements have not been a big driver because the amount of content they supply to their automotive customers is relatively small. They have had success finding suppliers in Central and Northeast Mexico, but find they are not always cost competitive with Chinese suppliers now that ocean freight costs have normalized. They are following a China +1 strategy to build in redundant capacity outside of China, mainly due to geopolitical and other risks.

• Former President of a supplier of automotive electrical connectors share that “local for local” is becoming a common business strategy, due to three factors:
  1. Logistics risk
  2. Cost of tariffs
  3. USMCA regional content requirements

They shared that they’ve had automotive customers with $400 components that didn’t care about USMCA content requirements, while a customer with $1 components insisted they manufacture in North America.

• Indirect Purchasing Director from an auto engine components suppliers shared that they have reorganized purchasing into a more strategic function in the past few years by centralizing the team in 3 North American locations to support 40 plants. They plan to focus on areas for developing the team’s skills in 2023:
  1. Expanding automation (launching a new version of SAP)
  2. Empowering buyers to participate in policies & procedure development
  3. Adjusting the team structure to leverage individual strength providing strategic procurement training for some (through LinkedIn Training and on-the-job training)

• Director of Strategic Sourcing for a bus and coach manufacturer shared that understanding product licensing is an area of needed development, as they suppliers want them to act as resellers to their customers. Because their team focuses on finding suppliers and negotiating terms, handing off purchase orders and materials management to another team, they plan to focus on contract negotiation terms for 2023 skill development.

• Global Procurement Director of an automotive supplier shared that they implemented APD training for cost analysis and negotiations in the past year. They plan to focus on 3 areas in 2023:
  1. Recovering inflationary cost increases from suppliers
  2. Working with customer-facing business teams to proactively manager stakeholder expectations
  3. Increasing collaboration with suppliers

• Purchasing Director for an NVH automotive supplier shared that their organization was not able to provide training for the purchasing organization in the past year, but focused on building a “book of knowledge” of commo tasks in order to support onboarding of new buyers and maintain consistency. In 2023, they have purchased online training modules on topics selected by them and the team and are asking buyers to devote 2 hours/month to the training. For relevant topics, they will involve internal SMEs (e.g. lawyers, sales, controller) in the training modules.

• Business Unit Leader for an automotive aftermarket supplier shared that they have heavily invested in an Asian supply chain, and have an initiative to localize more suppliers for North America. They have found that Mexico has good high precision/high volume suppliers for metal stampings and injection moldings, but are finding supplier capacity to be a challenge. They reported they are seeing a lot of investment in Mexico manufacturing.

• Vice President of Purchasing for a commercial vehicle supplier shared that have successfully sourced stampings and forgings in Mexico. They are finding that supplier capacity is challenge when nearshoring from China, particularly low volume suppliers. They also shared that they have been able to adjust to North American material properties when nearshoring from China to Mexico, resulting in reduced thicknesses.

• CEO of a printed durable label supplier for commercial trucks shared that they have been manufacturing in China since the 1979’s, and recently a major customer asked them to move out of China due to tariffs, geopolitical risks, and USMCA. They have identified high pressure die casting suppliers in Central Mexico, but are struggling to mover freight to the U.S. They would prefer Northern Mexico suppliers, but are finding them to be capacity limited, with commercial truck volumes too high for some.

• Head of Interior/Exterior Procurement for an automaker shared that they have found Mexico to be very cost competitive except for the materials subsidies some countries provide their manufacturers.

• Global Supply Chain Director for an industrial conglomerate shared that risk mitigation is driving their initiative to move sourcing from Asia to China. Previously, they had an initiative to increase their Best Value Country spend to 25%, resulting in more suppliers in China, India, and Eastern Europe. They have a manufacturing facility in Mexico with a procurement team, but are finding that not having a Supplier Development team in Mexico is a challenge as they are having a difficult time attracting suppliers for low volume applications. They have had success sourcing wire harnesses, castings, and fabrications in Mexico, but shared the following challenges:
  1. Mexican suppliers are not cost competitive with Chinese suppliers for hydraulic components and cylinders
  2. They routinely see quotes increase from Mexican suppliers (up to 50%) after samples are approved
  3. They find that plastics suppliers based in the U.S. are a better value than Mexican suppliers

• Former COO at an automotive fluid routing supplier shared that logistics was a struggle in Mexico. They studied moving some supply from China but found the freight costs from Mexico to Arizona didn’t make sense. They believe that Mexico will be more cost competitive with China in the long term as costs in China continue to rise faster than in Mexico.