Sourcing to Mexico 2022/23 Executive Roundtables

Below are discussion highlights from over 40 Manufacturing Purchasing and C-level executives who participated in APD’s Executive Roundtable series on Sourcing in Mexico over the past year.  These online roundtables were invitation-only, small group events where top executives from mid-size and large manufacturing companies shared their experiences and insights on issues relevant to them.  The topics range from which commodities they are finding good suppliers for to how they’ve dealt with logistics and tax challenges when nearshoring their supply base from other countries.

Discussion Highlights: Finding Mexican Suppliers

February, 2023 Executive Roundtable

• 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.

Discussion Highlights: Nearshoring to Mexico

January 21, 2022 Strategic Cost Reduction Roundtable

• Former President of a sintered metal components supplier shared that they’ve had good experience sourcing castings, forgings, and machining to Mexican suppliers. They cautioned that it’s important to monitor supplier capacity – they’ve had experience with suppliers “overselling” – and to ensure that company leaders in suppliers are not hands-off with the workforce. They also shared that when moving manufacturing operations to Mexico, finding skilled labor can be a challenge, so it often makes sense to invest in modern technology that can be operated successfully with lower skilled labor.

• Head of Procurement for an automotive powertrain equipment manufacturer shared that they have identified Mexican suppliers that either:
  • Can produce at a high quality, but costs don’t offer an advantage to U.S. suppliers once freight and logistics are factored in, or
  • Can produce at a high quality and offer cost advantages to U.S. suppliers, but can’t meet the Mexican government requirements for exporting

They shared they have found India to be a good supply market for their project-based business, and that Chinese suppliers are faltering.

• President of an electrical enclosures manufacturer shared that they had managed plants in Mexico at a prior company, and cautioned others to be careful about training, quality, and technical staff capabilities in Mexican suppliers.

• Vice President of Global Purchasing for an automotive interiors supplier shared that they have an initiative to localize supply for two manufacturing facilities in Mexico. They shared that they used to manufacture components out of one facility for vehicles being built in both U.S. and Mexico, but due to transportation costs and USMTA regional value content requirements, they are now being asked to quote production from two facilities (one U.S. and one Mexico). They also shared that they are finding it challenging that Mexican suppliers want to transact in U.S. dollars, while their customers want to pay in local currency.

• Vice President of North American Purchasing for a sunroof manufacturer shared that they are planning to source more from Mexico and less from U.S. and Asia in 2022. They have found Mexico have a better business case for “best cost country” when considering landed costs. They shared that they have had good success sourcing stampings, injection moldings, glass, and electrical components from Mexico, but cautioned that many suppliers are over-capacity and the skill set of engineers and technicians at Mexican suppliers can be lacking.

• Indirect Purchasing Director for an automotive components suppliers shared that they have 4 plants in Mexico, and are beginning to source tooling and small components to Mexico that traditionally have been sourced to China. They shared that they are working with U.S.-based strategic suppliers to have a presence in Mexico to support their facilities there.

• APD shared that recent experience with sourcing to Mexican suppliers is that many are eager to win business and will provide cost breakdowns, it just takes more time. They also shared that they’ve found some Mexican suppliers have adapted to U.S. business expectations, while others require a local interface.

Discussion Highlights: Nearshoring to Mexico

January 27, 2022 Strategic Cost Reduction Roundtable

• Former Strategic Sourcing Director at a health products supplier shared that they recently resourced some items from Asia to Mexico, primarily bulky items that don’t ship efficiently. They presented a business case to leadership that focused on total cost and risk mitigation rather than piece price. Advantages they’ve found for sourcing to Mexico vs. Asia include:
  • Mexico offers an enthusiastic, well-educated work force
  • Better respect for intellectual property and contracts in Mexico
  • They cautioned that some manufacturing capability has diminished in Mexico for commodities that have been sourced primarily to Asia in the past decade(s), and that manufacturers should be prepared to invest in supplier development when moving sourcing back to Mexico.

• Vice President of Procurement at a poultry incubator manufacturer agreed that a Total Cost of Ownership evaluation is necessary (vs. piece price) and shared numerous advantages of sourcing to Mexico including:
  • Similar time zone to U.S. and Canada
  • Reduced travel costs for supplier visits
  • Similar holidays (can lose up to 2 months/yr of optimum productivity sourcing to Asia)
  • Lower tariffs/USMCA advantages
  • Highly educated workforce
  • Lower logistics costs
  • Lower supply chain risks and transit times
  • They also shared that they’ve had good experience sourcing plastics and electronics, but not plastic tooling or aluminum extrusions in Mexico. [Note: APD shared they recently completed an aluminum extrusion sourcing project in Mexico and identified multiple capable and cost competitive suppliers]

• Purchasing Director for an automotive supplier shared that they have found Total Cost of Ownership to be better out of Asia, primarily due to highly advantageous raw material prices (they source mainly hot rolled and fabricated steel components, as well as aluminum castings and forgings). However, they agreed that supply continuity is critical and driving their initiative to nearshore. They commented they’ve had success moving some final assembly work from China to Mexico and have optimized their logistics to ship components directly from China to Mexico (previously had shipped them to U.S., then distributed to locations in U.S. and Mexico).

• CFO of an automotive aftermarket exhaust systems manufacturer shared that they recently moved sourcing of steel tubes from China to Mexico, as well as some aluminum products, mainly due to transportation cost advantages. Their strategy going forward will be to dual source in both Mexico and Asia to be able to optimize costs as economics change.

• North American Purchasing Director for a diverse machinery manufacturer shared that they have had success moving sourcing from U.S. to Mexico for items with high labor content such as castings and fabricated parts. They’ve found that complex items such as electronics can have higher piece prices in Mexico vs. the U.S. They also shared that they have found good EMS suppliers in the Czech Republic.

• Product Line Purchasing Director for an automotive steering and driveline supplier shared that they are in the process of moving sourcing of mechanical products from China to the U.S. due to tariffs, transportation costs, and extended transit times. They have found that their Mexican stamping suppliers haven’t been able to get steel at competitive prices to China – so they set up a Free Trade Zone for their Arizona facility to import steel tariff-free from China and export to their Mexican stamping suppliers. They also shared that face-to-face meetings with suppliers and site visits to supplier manufacturing sites are important to understanding capabilities. They haven’t been able to identify capacity in Mexican suppliers capable of tight tolerance machining.

Discussion Highlights: Nearshoring to Mexico

February 2, 2022 Strategic Cost Reduction Roundtable

• Director of Strategic Sourcing for an electronics distribution manufacturer shared that they encountered misconduct when attempting to leverage strategic MRO suppliers and agreements for their Mexican operations.
  • APD shared that they have received customer feedback that breaking ties with local MRO suppliers is often more difficult in Mexico then U.S/Canada.

• Vice President of Procurement for an automotive and plastics packaging manufacturer shared that they have an initiative to move some supply sources from Asia and U.S. to Mexico. They shared that in previous companies, they had good experience sourcing electronics and labor-intensive items (e.g. seat covers and trim) from Mexico. Some challenges of sourcing from Mexico include instability of the workforce (Juarez was mentioned specifically) and logistics issues within Mexico.

• CEO of a vehicle cover and flooring manufacturer shared that they are struggling to hire for U.S. operations to support growth. They shared two experiences sourcing from Mexico:
  • They currently have a maquiladora supplier in Mexico, and have experienced wage increases the past two years due to double digit increases to the minimum wage.
  • They have identified sewing contractors in central Mexico, but are finding it’s taking a long time for them to obtain maquiladora status. In addition, they are encountering logistics, both internal to Mexico and getting materials across the border.

• President of an automotive accessories manufacturer shared that they recently moved operations from an acquisition to Tampa and have found it difficult to keep employees. Consequently, they are moving operations to Mexico.

• Former Vice President of Purchasing for a thermal imaging components manufacturer shared that they have extensive experience sourcing to Mexican suppliers and found:
  • Bankomex can help U.S. companies secure tax incentives when establish Mexican operations.
  • Common challenges include raw material capacity, worker retention, and transportation infrastructure.
  • They’ve had more success sourcing to Central Mexico.
  • They also had success working with current U.S. supplier to establish Mexican operations, including forming joint ventures with suppliers.
  • Be prepared to develop suppliers, for both quality and capacity.
• They also shared experience from sourcing to other locations:
  • Vietnam has proven competitive for soft goods. Material is typically imported from China, and there is a French cultural influence on worker rights
  • India has similar raw material and infrastructure challenges as Mexico

Discussion Highlights: Nearshoring the Supply Chain

11.2.22 Executive Roundtable

• Aluminum castings/machining
• Aluminum extrusions
• Castings
• Copper tubes
• Corrugated packaging
• EPDM/rubber seals
• Exhaust tips
• Fabrications
• Forgings
• Injection moldings
• Machined parts
• PVC sheets
• Stampings
• Steel tanks

Highlights of the roundtable discussion are summarized below:

• Vice President of Procurement for a hatcheries manufacturer shared that continuity of supply and cost competitiveness have been the main drivers of their nearshoring efforts. They shared that they’ve had success nearshoring metal components, plastics, and electronics manufacturing services, primarily in Mexico.

• President of an automotive accessories manufacturer shared that they have been working to move supply from China to Taiwan due to the 7% tariff currently being paid for electronic goods imported from China, but are finding that manufacturing costs are 5% higher in Taiwan, offsetting much of the tariff advantage. They commented that there aren’t viable alternatives to these two countries for the electronic components they buy. They also commented that Taiwanese industry does not appear to be as concerned about geopolitical tensions with China as we are in the U.S.

• Director of Indirect Sourcing and Major Programs for a fork truck manufacturer shared that supply resiliency is the major driver of their nearshoring efforts, particularly out of China. They shared that they have had success nearshoring plastics and wire harnesses, mainly in Mexico, but are concerned that Mexican suppliers are running into labor constraints as production has been ramping up with North American nearshoring initiatives.

• Director of Enterprise Sourcing for medical devices manufacturer shared that their interests in nearshoring have been primarily cost reduction and shorter lead times. They also cited IP protection, primarily in Asian countries, and requirements for local sourcing in some countries including India and China.

• Director of Sourcing for a garage door opener manufacturer shared that tariff and freight costs initially drove their nearshoring efforts, but with Pacific ocean freight costs returning to pre-covid levels, the focus is on supply risk related to local covid-related shutdowns in China. They shared that they have had success using plastic moldings suppliers in both the U.S. and Mexico.

• Director of Commodity Management for a CNC machinery supplier shared that their main motivation for nearshoring is reducing costs. They are still encountering significant supplier price increases even though most commodity indexes are moving downward (with the exception of energy). They have been able avoid some cost increases by analyzing foreign exchange impacts and addressing in supplier negotiations. Also, they pointed to the opportunity to bring in competitive suppliers, citing a recent 15% cost reduction for suppliers the same materials.

• Associate Director of Mechanical Commodities Procurement for a consumer audio products manufacturer shared that risk mitigation is driving their nearshoring efforts. They are concerned with the reliability of getting materials out of Asia, citing geopolitical risks. They have had success nearshoring plastic components (U.S. and Mexican suppliers), and shared their biggest challenge has been finding suppliers that can support their high mix/low volume business.

Discussion Highlights: Finding Mexican Suppliers

May 26, 2022 Strategic Cost Reduction Roundtable

• President of an automotive and heavy truck OEM supplier shared that they entered into an agreement with a shelter organization to establish a manufacturing operation in Mexico. The shelter organization will build out a facility and supply labor, and they expect to achieve a 75% reduction in labor costs vs. manufacturing in U.S. They also shared:
  • They’ve switched from sourcing electronics from China to sourcing from Taiwan due to the U.S. tariffs
  • They continue sourcing electronics from Asia because many sub-suppliers are in Asia
  • Warehouse space if very tight in Nogales
  • In their opinion, matching the right size supplier to your company’s size is a big factor for ensuring you get the right attention from suppliers
  • Lead times from Texas Instruments have increased from 60 days to 2 years

• CEO of a manufacturer of labels and decals for heavy truck OEMs shared that their customers are raising concerns about sourcing to Asia including tariff costs, long lead times, transportation costs, and communication delays. They also shared:
  • They are considering using a shelter organization to begin manufacturing in Mexico and are opening a distribution facility in Texas to support U.S. customers (they are based in Canada)
  • They’ve hired a consultant to help them find capable and willing suppliers, but have found that many suppliers don’t want their business due to their low volume/high mix requirements
    • They’ve looked at 100+ supplier and have found a couple that they are conducting APQP audits
  • They are finding it’s a 6-month lead time from China (order to delivery)
  • Holidays in China put a lot of pressure on planning because they don’t align with North American holidays

• Associate Director of Mechanical Commodities for an audio products manufacturer shared that they’ve found that real estate in Mexico moves quickly – they are bringing on a second manufacturing operation in Juarez and missed out on their first 3 choices. They also shared:
  • They currently source about 80% from China and Taiwan – The organization started considering nearshoring when the U.S. tariffs went into effect, and recent geopolitical risks are adding to the justification (esp. Taiwan)
  • They are finding the Total Ownership Cost for sourcing to Mexico isn’t too much worse than sourcing to Asia
    • They cited labor and freight costs as important factors making Mexico more competitive
  • It’s been difficult to find suppliers in Mexico – they’ve found it easier in China
    • They are a low volume/high mix manufacturer with high cosmetic standards
    • They are looking to add a purchasing person in Juarez to help with finding suppliers
  • 80% of their BOM is materials, and they are starting to reengineer their assembly process to include more automation

• CEO of an injection molder shared that they’ve had a plant in Saltillo for 25 years, in addition to their 8 U.S.-based plants. They’ve moved a lot of customer programs from U.S. manufacturing to their Mexican operation, but haven’t been able to find cost savings moving programs from China to Mexico.

• CEO of a hydraulic components re-manufacturer shared that they currently buy about ½ their supply from China, and long lead times are tying up more capital. They anticipate the recent Covid-19 shutdown in Shanghai will affect their third quarter. They would like to increase their sourcing to Mexico, but find they are overshadowed by automotive OEMs.

• VP of Strategic Sourcing for a furniture manufacturer share that they are currently focusing on their indoor hospitality product line with the goals of de-risking the supply chain and shortening the cash cycle. They also shared:
  • They buy a lot of finished goods out of Asia, and freight costs have been a tremendous impact due to the bulky nature of their product
  • The hospitality furniture industry (e.g. hotel lobby furniture) is highly fragmented with a manufacturing center in Guadalajara that mainly serves the domestic Mexican market
  • They are moving some of their outdoor furniture manufacturing to Juarez and are hoping to leverage their Spanish-speaking resources to help with finding Mexican suppliers