Sourcing in Mexico

Does it make sense to source in Mexico? It depends on the product, and the shipper’s willingness to accept start-up challenges and logistics hurdles, according to a panel at the I.E.Canada conference in Toronto recently.

One of the speakers was John O’Reilly, director of customs and traffic with Toshiba of Canada Ltd. Three years ago the company shifted some production of electronic products from China to Mexico, and is pleased with the results. But the benefits didn’t come easily.

“It wasn’t without growing pains to set up,” O’Reilly said. “We went in early summer, 2006 and it I think overall it probably took about six to eight months.”

Toshiba chose Mexico for a number of reasons. The shorter lead times are helping the company meet its carbon emission reduction targets, and they’re also benefiting customer service.

“From placement of the [purchase order] to production to delivery to the customer, it’s less than two weeks,” he said. “We’ve found the quality of the product that’s being manufactured there is very high.”

There’s also the advantage of price protection. With shorter lead times, goods from Mexico aren’t as affected by volatile market prices; unlike shipments from Asia, which take weeks to arrive, he added.

Since many of the components are sourced locally, they’re eligible for duty relief under NAFTA. Closer alignment of time zones is an advantage, along with lower shipping costs.

“We’re using 53-foot dry vans and the number of units per load has increased from the 40’-foot [ocean] containers, resulting in fewer shipments and lower cost per unit.”

The cons

But Mexico has it disadvantages too, he pointed out. Cost of labour is higher than it is in China. An even bigger challenge is border congestion.

“Delays at the border typically are two to four hours. Depending on the time of day and the crossing point, shipments don’t leave our facility after noon on Friday or they would not likely cross in time before customs closes for the weekend.”

Toshiba also experienced carrier reluctance. Some of the trucking companies were leery about giving their equipment to dray companies crossing the border. The issue raised questions around liability, and also led to stockpiles.

“We had to open three additional warehouses to house product until we could get enough equipment to get it moving,” he said. Security was also a concern, though hasn’t turned out to be a major problem.

“We ship in full truckloads, sealed. The key is just to keep it moving. As long as we keep the [goods] moving we haven’t had a single issue.”

All in all, the decision to source closer to home was a good one, he concluded. “Aside from the congestion there’s a seamless flow. We’ve certainly been able to have on-time performance, at least in the last year.”

Other panel members included John Ferguson of Schneider Logistics, and representatives of Mexican trade commissions. The common denominator among the speakers was the effect of fuel prices.

When crude oil spikes, or west-coast ports become too congested, interest in Mexico surges. Ferguson has noticed ‘clusters’ of product shifting to Mexico, predominantly electronics and appliances. Decisions to near-shore should include full analysis around trade and tariff issues, logistics, labour costs, risk and lead times, the panel concluded.

—Photo: Border congestion was cited as one of the main challenges of sourcing in Mexico.

Photo courtesy of U.S. Customs and Border Protection