January 27, 2022 Strategic Cost Reduction Roundtable
The roundtable theme was lessons learned from sourcing to Mexican suppliers. Highlights of the roundtable discussion are summarized below.
- 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.