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Auto Manufacturers Nearshore to Mexico to Shorten Supply Chain

Written by Michael Clark
July 12, 2016

Mexico offers a skilled and affordable work force.

Mexico offers a skilled and affordable work force.

Offshoring offers manufacturers many supply and labor benefits, but it can also present supply chain logistics management obstacles. Building products on the other side of the planet can rack up transportation costs for materials and finished products, while companies have to rely on distant foreign partners for updates and productive operations.

Some companies have found success by nearshoring to Mexico instead of going with traditional options for offshoring facilities. Forbes explained how Mexico is currently undergoing manufacturing growth that makes the country an ideal candidate for production. By nearshoring, companies can still benefit from foreign locations without the distance usually standing in the way of offshoring success.

Ford Opens New Facility in Mexico

Ford is a U.S. auto manufacturing giant that wants to get into the hybrid game. While still keeping the majority of its production plants in the U.S., The Wall Street Journal reported the company will begin building a $1.6 billion facility in Mexico to be completed by the end of 2020.

The automaker also has plants in Germany and China and this is the second announcement the company has made in 2016 about further expansion in Mexico. This most recent facility will be put to work building new hybrid vehicles. The flexibility and cost-efficient labor of nearshoring allows Ford to launch innovative products, while domestic production focuses on models proven successful.

It’s increasingly common for major U.S. and foreign automaker brands to have facilities in Mexico and most have plans for future expansion. In 2015, Mexico accounted for one-fifth of North American auto production with BMW, Volkswagen, Toyota, Honda and Chrysler contributing to the total output. Auto manufacturing in the country is expected to increase 53% by 2019.

Mexico is a Smart Manufacturing Choice

It’s not just cars. Electronics and medical device manufacturers also turn their eyes to Mexico to take advantage of the benefits offered by the country. The most obvious is labor. Manufacturing.net said payroll for labor in Mexican facilities is much more affordable than U.S. options. Currently, certain areas in Mexico offer workforces with more talent and lower rates than typical options in Asia.

The workforce is also skilled. The Mexican government recognizes its manufacturing success so it invests in communities and populations to foster future success. Not only are young workers provided with education, but the government provides manufacturing businesses with incentives to utilize Mexican labor and distribution. Mexico has low exportation tariffs due to its trade agreements with 45 countries – more than double the number currently held by the U.S.

The government appreciates the new business and makes things as easy as possible for companies. Deloitte reported it takes six days on average to start a business in Mexico, while it takes more than 30 to begin operations in China.

Offshoring With a Shorter Supply Chain

A major benefit Mexico offers over other offshoring locations is proximity. Being closer to U.S. companies allows for rapid communication, transportation and sharing of data collected from manufacturing operations. This is helpful for companies building innovative products like Ford that may need to make adjustments based on consumer reactions.

Shortening the supply chain through nearshoring also reduces costs and the chances of something going wrong. Supply Times suggested nearshoring provides companies better control than traditional offshoring. U.S. companies building products in Mexico don’t have to deal with global supply chain issues but get the benefits of foreign partners.

Being closer should create short lead times, provided communication is effective. Manufacturing and inventory management solutions like mobile data collection devices help create consistent records on procurement and suppliers. To truly take advantage of nearshoring, companies need an information system ready to deal with foreign partners no matter where they are located.