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The aerospace supply chain in Mexico and related topics

The aerospace supply chain in Mexico and related topics

Tecma talks with Mexican aerospace professional, Aldo Rodriguez, about the industry’s development since 2000.

Tecma Group of Companies:

Hello and welcome to another installation of Tecma Talk podcasts. These are audio recordings in which we speak to experts both within and external to the Tecma Group of Companies that have in-depth knowledge of various facets of things that have to do with manufacturing in Mexico. Today we have the good fortune of having Aldo Rodriguez with us. Aldo is a longtime plant manager in Mexico, and he’s been working more than an decade with aerospace companies. He has seen the development of the aerospace industry supply chain in Mexico, as well as the industry as a whole fromits beginnings to the present day. How are you today, Aldo?

Aldo Rodriguez:

Very well. Welcome everybody and thanks for the opportunity. It’s always a pleasure.

Tecma Group of Companies:

Aldo has a new position with a new company. Aldo I know that you had your grand opening the other day. Maybe you can tell the listeners a bit about yourself and the new company that you aregoing to work for.

Aldo Rodriguez:

Currently, I am in charge of Noranco’s new project in Mexico. Noranco is an international group of companies. We have eight “centers of excellence,” eight plants in Canada, the US and, now, in Mexico with the newest facility here in Monterrey. We had the good fortune of having the Noranco Manufacturing Open House this week. As for myself, I spent some years working with other aerospace companies before coming to Noranco back in October of 2014 to work on this start-up effort. I spent some years with Senior Aerospace, the past eight years. Prior to that, I spent three years with Honeywell
Aerospace doing sourcing, developing the aerospace industry supply chain in Mexico through supplier development, and working in a team on an initiative that involved visiting companies across Mexico from tip to tip. Before this I spent some years working in the automotive industry. That was before 2000. I’m an engineer. I’m a process guy, and I like manufacturing a lot, and I enjoy sharing experiences, chatting and networking with colleagues for the purpose of benefiting from sharing experiences in order to get the best out of ourselves and to work together towards our common goals.

Tecma Group of Companies:

Thank you for that introduction. It was a good bit of information about yourself, especially that you have been working in the aerospace industry in Mexico since 2000. Really, that’s when, internationally, companies really started to pay attention to Mexico. From 2004 until the present, there has been double digit growth in the Mexican aerospace industry. Even though the growth has been significant, there have been, and are going to be, some challenges for the development of the aerospace supply chain in Mexico. You, having been involved in seeing how the supply chain was at the turn of the century, can see what the current state of affairs is. What progress has been made, and do you still see that there are needs to be addressed that haven’t been met yet?

Aldo Rodriguez:

Great question. The aerospace industry in Mexico in terms of the number of companies, jobs, and the dollars generated in Mexico in the last ten years, have increased at an amazing double-digit pace. Some people in the industry say that it has been twenty percent per year. Despite this fact however, there are still some challenges in the road as concerns the aerospace supply chain in Mexico. I call them “speed bumps.” These are not “show stoppers,” by any means, just speed bump that we, as an industry, encounter. If we work together to eliminate those challenges, this growth
is going to be even more dramatic. Let me start presenting information on the aerospace supply chain in Mexico by addressing a topic that has been discussed in many forums: the topic of secondary,or special, processing in Mexico. This is a capability that is being developed slowly in comparison to the rest of the industry. Let me take a moment to explain a bit for the audience that may not be completely aware of, or familiar with the terminology. Making a part or a component, machining a component, conducting assembly or shaping a part to certain dimensions through various processes of manufacturing such as machining or hydro forming is one part of what is required. Many times there is a need to do things such as non-destructive testing, heat treating parts or, possibly, apply anti-corrosive coatings. There are only a handful of companies in the aerospace supply chain in Mexico, maybe ten, that offer those services. In the US, in Europe and in Canada, there are many companies that offer those services to machine shops or fabrication companies. The difference is that, here in Mexico, we have only a few. These special processing companies need to
comply with certain requirements and carry special certifications for their end customers. They need industry credentials, NadCap approvals, and some specific, particular documents in their portfolios to be able to service their end customer as a “certified’ company. That has been a challenge. There are companies that are located from Merida to Mexicali that have excellent capabilities of fabricating parts, and machining parts and, yet, they need to send them somewhere. Many times those parts need to travel to the US, cross the border two times and then return to Mexico for final inspection or assembly. Only then are the parts ready to be shipped to their customers. You can imagine the cost associated with that, the turnaround and lead times, the inventory management, the transactional management, and the compliance management in terms of international trade. That is happening right now. I would say that, number one: We are lucky. Recently, many companies have announced that they are opening up operations in Guaymas, the Bajio and the Queretaro area over the last two years that will offer these services in the aerospace supply chain in Mexico. However, this is not enough.

Some companies like us, like Noranco, we aim to be self-sufficient. This means heat, painting and inspecting our own parts to offer better service to our customers. Many other companies in the aerospace industry in Mexico do not have such a capability. This means we need to work on this challenge. The second one is training and education: In general terms, there are a couple of good schools, or perhaps three or four schools in Mexico that offer programs for students to learn how to properly perform specific processes in the aerospace with skilled professors that come from the
industry. Those schools are located in Chihuahua, Mexicali, Queretaro and Monterrey. Maybe we need more seats and more programs, as well as a deeper penetration of those programs to have a more ample pool of people trained and ready to touch parts.

Those two things are challenges, not problems. They’re not show stoppers, but possibly speed bumps that are in our path for development of the aerospace supply chain in Mexico.

Tecma Group of Companies:

Just a follow up question with respect to one of the two points that you mentioned: Would you say that the speed with which secondary processes have migrated into Mexico to avoid the extra shipping costs that you spoke of is basically a “chicken and egg” problem? In other words, they are not there because the volume of work that would justify them being there did not exist during the years that we have been examining? Would you say that there is a volume of work now in the aerospace supply chain in Mexico to justify the migration of more heat treaters, more people that do coating and painting, and more firms that do things like non-destructive testing? Is it a question of volume?

Aldo Rodriguez:

I think that the initial reaction of these companies was very positive. I know a few companies in Arizona, for example, that had been exploring the opportunity for ten years or more. Yet, they didn’t pull the trigger until recently, because the volume was a problem. Maybe ten years ago there was enough critical mass out there. There were not enough jobs. It was costly to set up this costly specialized equipment like furnaces or chemical processing lines. The conditions were not there yet. It was too expensive or too risky to add these sorts of facilities to the aerospace supply chain in Mexico, and to get the approvals. The approvals are not easy to get, and they are expensive. So, I think that the volume is finally here, and it’s here to stay. The volume, the number of jobs, the amount of work that needs to be treated, finalized and inspected is out there. It was just a matter of time. Now that everyone is finally convinced that Mexico is pushing
harder, and we are moving closer to the top five contributors in the world for components the volume is there finally. I don’t blame these companies. Over the last ten years, they did their studies. They surveyed the market, and, possibly, the economic conditions were not the best five or six years ago with some slowdown in the economy. That did not help, but now and here in 2015 and going forward the conditions are there, the companies are ready to go and have better expectations for recovering their investments in less time.

Tecma Group of Companies:

You mentioned that Mexico is getting closer to breaking into the top five in terms of parts producers world-wide. My understanding is that, if you started looking around the year 2000, Mexico was barely on he radar screen. Today, however, if I am not mistaken, the aerospace supply chain in Mexico is the sixth largest source of aerospace parts that are utilized by companies that are manufacturing in the United States. More and more Mexico is being seen as a reliable and quality source for parts.

Since you have been in this position before, what would you recommend to those that are seeking to purchase parts in Mexico as to being the best way to start a sourcing project?

Aldo Rodriguez:

Yes. That’s also a very good question. In my personal view, the best way to approach these projects and avoid repeating mistakes is to take lessons learned in the past from companies that have been sourcing parts from the aerospace supply chain in Mexico for a decade or more. It’s important to approach organizations, and government entities that have valuable information such as statistics, directories and contacts, and have been doing a lot of “groundwork” in terms of surveying, researching and understanding what is being done where and by whom. There is already a lot of groundwork that has been done by agencies in Mexico such as the Secretaria de la Economia and ProMexico, as well as entities like FEMIA, the Fedracion Mexicana de la Industria Aeroespacial. These entities have the knowledge, and it is in everybody’s interest to share that information as much as possible to maximize the penetration of these projects. There are companies in Europe and the US that are actively looking for aerospace supply chain in Mexico firms with whom to do business. They will be successful. There is a large supply of commodities, processes and special services
available in Mexico. Sometimes, however, it is difficult to pick your battles, so my recommendation is to approach organizations like FEMIA, ProMexico and the Secretaria de Economia and other organizations in Chihuahua or Sonora or Monterrey, and other cluster associations. Speaking with representatives of these groups makes it possible to make three or four conferences, meetings or visits. In this way, you will get a lot of information in one shot, rather than going to the effort to visit many cities and many companies on a more complicated agenda. That would be my number
one recommendation concerning the process of scouting companies in Mexico.

Tecma Group of Companies:

There is a lot of information out there that is good information, but there are also some assumptions and misconceptions out there that are not quite accurate about Mexico, and its competitive advantages when looking at the aerospace industry. What is fact and what is fiction, Aldo?

Aldo Rodriquez:

There are many opinions out there on this topic. What I have been hearing in various international conferences and events, and seminars and B2B meetings here in Mexico, in Europe, as well as in the US the number one concern that people have has to do with security. There is the perception that the country is dangerous, or not reliable in some aspects, that is fiction. Definitely, there have been issues and situations that are not pleasant in the country having to do with violence or the illegal narcotics trade, but that happens in many countries and in many places in the world not only in Mexico. The media in the last three or four years has been to specific, or too repetitive, about incidents that are real. Repeating the same stories many times, however, puts a
microscope on things which creates the impression that the country is out of control. That is not true. Mexico is a great place to do business. The economy is doing perfectly well. The conditions are set in Mexico for establishing companies, doing legitimate business and getting good returns and economic benefits. The government is friendly towards business, and the new generation of professionals and technical people in Mexico is much better prepared. Many times individuals are bilingual. Schools are in great shape. We have more programs with more sophistication in processes. Those are the good things about Mexico that are true, and that need to be advertised even more. The bad things happen. There are some places in the country that may be dangerous, if you are in the wrong place at the wrong time. It’s the same as if you go to Detroit or Miami or LA, or to other large US cities. This is one misconception, or fiction. Mexico is
safe and friendly.

Another misconception is cost. Some people may assume that making a part in Mexico that it is going to cost half, or a fraction, of what it costs in other places. This may not be true, but I will assure you that it is going to be more competitive. You will benefit through some savings and will be more competitive with your customers, because, of course, labor less expensive than it is in Europe or in the United States and Canada. In addition to labor, however, you have to consider other variables such as utilities, cost of logistics and so on. The overall result of the combination of all of those elements in the aerospace supply chain in Mexico end up resulting in a total landed cost lower than is found in the US and Canada, and lower than is the case in Europe, for sure. I really try to address this idea with the people that I speak to, and remind them that Mexico is not a “cheap” place to do business. It is a competitive place to do business. We can be
more competitive than other countries, but not necessarily cheap. It is important not to expect to have sophisticated aerospace components made in for cheap. We do not want cheap parts. This is a very sophisticated and regulated market. Products and processes are specialty and cannot be cheap anywhere in the world. Again, I think that to say Mexico is a cheap is a misconception and a fiction, but I am convinced that Mexico is very competitive.

Tecma Group of Companies:

Most of the listeners would agree, Aldo, that those of us that fly commercial airliners are not looking for “cheap” aerospace parts. We want competitively priced parts that are going to keep airplanes flying.

I have a last question for you that I would like to ask you given the fact that you have a wide gamut of experience during a time when the industry and the aerospace supply chain in Mexico has enjoyed impressive growth. You have been on the sourcing end of things, and have given advice as to how people should go about beginning efforts to put together a sourcing project. You have been involved in various aerospace production plant start-ups in Mexico, as well. If there are people that are thinking of doing a plant start-up, or moving a part of their operation to Mexico, from the start-up perspective and that of someone who has been there, what things should they pay particular attention to from day one so as not to make mistakes?

Aldo Rodriguez:

There are two big elements to consider here: technology transfer, in terms of equipment, machinery and tooling, or the “hard” or physical part of manufacturing; the other part to consider is in the area of finding skilled and motivated people for the development of the workforce. The first part can be moved quickly. This does, of course, cost money, but it is not very complicated to move a piece of equipment like a press or a furnace or a machining center down to Mexico in a way that is legally compliant. The other part, however, the development of people with skills, takes
time. I suggest that companies looking to form a part of the aerospace supply chain in Mexico to be very careful with their with human resources tasks such as screening and recruiting early in the process. It is very important. Even though companies can find brilliant people and can put together an organization in a short time, this requires consistent effort and has to be kept as a priority. In Mexico, the work ethic is excellent. The average worker i.e., and inspector or an engineer, has an interest in staying with a company for the long term. There are motivated and dedicated and very, very reliable and diligent people that companies can choose from and hire. Companies need to take care of them, not only with money. Money is one part. Companies need to be
competitive in salaries and in benefits, but there are also other motivators. These include listening to the workers, and having a sense of what they need beyond there salary and benefits. Families are very important, and it is good to invite them to do things such as coming to see the workplace, and having events for employees’ children. In Mexico, we are very family-oriented, and those things are so powerful. When you have a skilled labor force in the aerospace supply chain in Mexico that is also motivated and engaged, and feeling part of the organization success will come. When workers are proud of the company that they work for, that is impressive.

Again, the physical part of starting up in Mexico: moving the machines, equipment and the tooling, that takes some time, but developing people takes possibly twice as long. Keeping people motivated and enthusiastic permanently is absolutely critical. Therefore, that item needs to take first priority. It’s very important.

Tecma Group of Companies:

That is good advice. Your stress on the cultural aspects of manufacturing in Mexico is very important, because, over the years, it has been notable that when people come into Mexico with a cultural blind spot and come in and implement management styles and activities that are commonplace in the US, sometimes, just don’t work in Mexico. As a result, they sometimes can run into problems. The advice that you have given to listeners to learn a little bit about the culture in Mexico is good counsel.

Aldo Rodriguez:

To add to that, we are not talking about nothing very special. This is not in conflict with time and attendance practices. It is not in conflict with anything that anyone would expect anywhere else in the world. Again, going back to misconceptions, we have hardworking people. Those stereotypes like people taking siestas, or not being very productive, are definitely myths that belong to the past century. Then again, those misconceptions still, in some sectors of the industrial community, exist.

So, the cultural aspect can be worked out with local management. It’s a good idea to bring expats, or other people from overseas, and, even, take workers from Mexico to see and learn best practices of your companies in other countries, and then return to Mexico to teach other people what has been learned. At the end of the day, however, making management local is a good idea. Having access to external advise or having an expat available for consultation sometimes is good, but local management works well also. That is another piece of advice that I can share.

Tecma Group of Companies:

Thanks a lot for all of the insight that you have provided. You’re very gracious in that you have a very open willingness to share information that is valuable to others. As is often the case with Tecma Talk podcasts you have touched upon a lot of very important matters in a relatively short period of time. You mentioned that people should consult with organizations like FEMIA, ProMexico and Mexico’s Secretaria de la Economia. In addition to seeking information from these groups, would it be possible for anyone listening to this podcast on the aerospace supply chain in Mexico to send you an email to ask you a question. Obviously, you are somebody that has “been there and done it,” and has no qualms as regards providing useful information to others.

Could people contact you by email or through some other means, if they have questions that they think that you can address?

Aldo Rodriquez:

Yes. Sure. Of course. Anytime. We all know in this industry that we need to have to be careful with some specifics and have to adhere to non-disclosure agreements for many particular topics, but ninety percent of the information is public domain. I am happy to connect people with people, and to give recommendation and advice. In general terms, I am glad to share any information that can help to build Mexico’s aerospace industry. Of course, I’ll be happy to help in any way that I can.

Tecma Group of Companies:

What we will do is to link to your LinkedIn profile, so that people can contact you through that means. If people want to connect with you they will be able to do so through LinkedIn.

Aldo, I want to thank you for speaking with me today. I know that you have been very very busy. Your time is very much appreciated.

Aldo Rodriguez:

Thank you. Good luck with this work. I think that it is a great way for people to connect, and to share and to add to their knowledge about the aerospace supply chain in Mexico, and industry in general. We all win something.

Remember, relevant and useful Mexico manufacturing content is available at one’s finger tips by downloading the Tecma Group mobile app from the Google Play Store, interested parties can also receive Mexico manufacturing information on a weekly basis by SMS Texting the word Tecma to 96000

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