Finding capable suppliers is always a challenge, whether you are focusing on local, regional, or low-cost country suppliers. In addition to reliable supply and competitive pricing, you have to do your homework to vet potential supplier attributes such as:
- Do they have the right manufacturing processes and experience with the materials you require?
- Are their quality systems and accreditation sufficient for your needs?
- Can they fulfill your preferred order lead times?
- Are they willing to accept your payment terms?
- Do they have the capacity to meet your growth projections?
There has been a meaningful shift in manufacturers looking to localize their North American supply chain, primarily shifting supply from Asia to Mexico. For some time, the Mexico manufacturing labor costs in USD have had a growing advantage over Chinese labor costs. Even though Asia to West Coast ocean freight costs have returned to pre-Covid levels, the manufacturing labor costs differential is significant for U.S. manufacturers.
While the Mexican government has increased minimum wages for manufacturing jobs by 20% beginning January 1, affecting most manufacturing labor rates. This pales in comparison to the relative advantage that Mexico has over China in USD terms.
The biggest issue we’re seeing with Mexican manufacturing suppliers is growing demand as more U.S. and Canadian companies increase their nearshoring efforts. This affects a number of commodities and has created 3 big challenges:
- Longer response times. Starting in January this year, we’ve seen a significant increase in response times for both Requests for Information (RFIs) and Requests for Quotations (RFQs). Mexican suppliers that used to be able to respond in 2 weeks are now taking 4-6 weeks.
- Limited capacity. Increasingly, we are seeing companies with all the right capabilities but no available capacity. This is becoming a problem for a variety of commodities, and we’re anticipating things will get worse before they get better.
- Selective suppliers. With more opportunities to choose from, Mexican suppliers are choosing to quote business from manufacturers they already have a relationship with and those that can offer the most promising business that aligns with their growth plans.
Here’s what you can do to minimize the impact of these challenges for Mexican sourcing:
- Adjust your expectations (and manage your leadership’s expectations) for supplier responses, and be sure to indicate a deadline for responses
- Make capacity a key topic when opening discussion with potential suppliers, and be specific about initial volumes vs. full production and key manufacturing processes needed
- Do what you can to appear attractive to Mexican suppliers:
- Take the time to develop a pitch to the suppliers on why your company will be a good customer
- Be prepared to be flexible at first on things like payment terms and cost transparency – typically, these are areas that can improve as the relationship is established
- Engage an experienced Mexican national to interface with suppliers – although language typically isn’t a barrier for supplier reps, the comfort level of dealing with someone who knows the business culture and has relationships in the country can make a difference
Watch APD’s Finding Suppliers in Mexico Webinar: