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Three Mexico Supply Chain Challenges

Three Mexico Supply Chain Challenges

Over the course of the last several years, Mexico has become the location of choice for companies that are seeking to most efficiently and cost-effectively supply North American markets and customers. Due to the political and economic stability that has characterized the country since the passage of the NAFTA in 1994, many improvements have been made that have resulted in the nation having become one of the world’s most prolific trading economies. Despite this, however, Mexico supply chain challenges remain. In this brief post we will examine three of them.

Among the Mexico supply chain challenges that manufacturers face today are the exigencies related to the need to optimize the control of stocks of inventory. The ability to harmonize forecasts with the real demand for products expressed by both domestic and international customers is critical to a company’s ability to preserve and to grow its profit margin. Although Mexico, due to its geographic proximity, does have a significant advantage over other low cost country competitors in this very important area, it is critical that production managers stay in constant contact with their colleagues in sales in order that the inventory and sales pipeline flows smoothly, continuously and efficiently. Manufacturers that are in production in Mexico should not take for granted the fact that the nation is advantageously situated when it comes to reducing inventory turns and managing obsolete inventory. While lead times for products being shipped from Asia are typically estimated in weeks, or, sometimes, months. Product can be shipped from a Mexican maquiladora to customers in the United States or Canada within a number of days. Remember, however, that competitors that operate in the same market space share this same advantage. Although this may seem to be an easier environment to work in, it is paramount to acknowledge that the inability to manage this flow optimally will result in higher inventory costs that will adversely affect the price of the product that is delivered to customers, as well as company revenues.

Mexico supply chain challenges also exist in the realm of transportation.  Due to increased manufacturing activity in Mexico resulting from work that has been re-shored from Asia, as well as from increased foreign direct investment (most notably in the automotive sector), Mexican trucking capacity is sometimes in short supply. A shortage of trucking assets available in Mexico has recently pushed up the cost of shipping goods from points south northward. Mexico’s truck transportation sector is dominated by smaller players, rather than companies with a global presence. Seventy five percent of the carriers operating south of the border have access to one hundred trucks or fewer. Many are family-owned and lack the financial resources to finance the purchase of new equipment to keep the pace with expanding demand for their services. Over time, this situation will auto correct. As a result supply chain professionals working in a Mexican environment must figure out the most cost-effective ways to have their goods delivered to market. In addition to trucking, rail transportation has gained popularity over the last several years, particularly within the automotive industry. When receiving quotes from transportation service providers in Mexico, companies should be aware that, in many cases, the price presented does not include the US $100,000 in cargo insurance that is customarily a part of a U.S or Canadian price quote.  Shippers with product originating in Mexico typically purchase their cargo insurance from a Mexican insurance company or customs broker.

A third issue common among Mexico supply chain challenges has to do with managing the physical assets used to warehouse goods that have been produced to supply customers that a company may have throughout the NAFTA region. Because of the huge geographic footprint that is characteristic of North America, companies are well served to take the time and make the effort to develop a warehouse location strategy. This is the case, because defining the number, the location and the function of a network of facilities in an optimal manner will have a positive impact on delivery service levels, as well as on overall logistics costs. Companies that manufacture in Mexico, or, for that matter anywhere, are better served by lining up less physical warehousing assets than more. Efficient use and location of warehouse facilities will create savings through economies of scales generated by combining overhead, will create an enhanced environment for the
implementation of automated processes and will result in an overall less complex managerial environment.

Although Mexico’s political and economic stability since the signing of the NAFTA in 2014, has made the country a much more conducive place in which to do manufacturing, Mexico supply chain challenges still do exist. The purpose of the above text was to introduce several common ones. A good first move, however, prior to the commencement of any maquiladora project is to contact the Mexico supply chain professionals at the Tecma Group of Companies.

 

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