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Manufacturing in Mexico eliminates the logistics weak link

22 Feb 2016

Logistics are a key concern for manufacturers in any industry, and a key driver of their decision to move offshore. This makes sense, too, because companies that relocate their operations to foreign countries to improve their returns on investment have a keen interest in choosing a location where supply chains to high-demand markets are cost effective and efficient. With this in mind, it's easy to see why many organizations are choosing manufacturing in Mexico as the wisest business decision with the most offshoring advantages, and even reshoring from China back to the West.

Mexico in the spotlight
While the benefits of manufacturing in Mexico are vast, logistical efficiencies are one major reason the country has emerged as a prime location for the industrial sector. According to Adrian Gonzalez of Talking Logistics, insights from the 2015 Logistics Summit & Expo revealed Mexico is back in the supply chain spotlight

"Mexico is back in the supply chain spotlight."

Today, supply chain efficiencies are crucial to the long-term success of any businesses, which might explain why Mexico has become such an in-demand manufacturing location. In fact, Logistics Management shared insight from a recent journal article about industrial manufacturers like General Electric and United Technologies focusing more on the supply chain to increase profit margins. The article explained manufacturers are not only asking their suppliers to lower costs, but also moving their existing factories to more affordable locations that actually contribute to their sustained growth. As it turns out, UTC described the supply chain as the "weak link" in their manufacturing process, which is why the company plans to invest $1.5 billion in a restructuring effort through 2018, that could involve closing existing factories and moving to locations that eliminate this hiccup in production.

By simply taking a look at Mexico's close proximity to high-demand markets such as the U.S., Canada and South America, it is clear to see the country effectively eliminates - or at least mitigates - the supply chain challenges manufacturers face. In fact, the Journal of Commerce shared data from the U.S. Department of Transportation that showed there was a 4 percent increase in the number of tractor-trailers crossing U.S. borders from Mexico since 2014. This spike is likely the product of more businesses realizing the offshoring advantages of manufacturing in Mexico, one of which is more certainly logistical efficiency.

China vs. Mexico: A clear differentiator
As more companies leave the U.S. for more profitable destinations, many still see China as the prime manufacturing destination. However, in a business world where supply chain efficiencies are in high demand, it makes sense that more manufacturers are turning away from China in favor of a western shore. In fact, Supply Chain Brain cited data from an AlixPartners survey of 248 manufacturing executives that found 32 percent of respondents had recently near-shored production or were in the process of doing so. Additionally, 31 percent of respondents chose Mexico as their most attractive near-shoring destination, which was an increase from 28 percent the prior year.

The option to import and export goods and save money throughout the supply chain is a clear advantage Mexico has over China in terms of earning manufacturing dollars. While shipping either supplies or finished products from China to the West can be both costly and time consuming, manufacturers and Mexico can get a finished good in the hands of a seller in no time. In fact, Chase shared data that revealed it takes five weeks and costs $4,300 to ship a 40-foot container from China to the U.S. On the contrary, it takes one week and only $1,800 to ship the same volume from Mexico to the U.S.

31 % of respondents chose Mexico as their most attractive nearshoring option Manufacturing in Mexico creates supply chain efficiencies for businesses. 

Couple this with the rising cost of labor and increased barriers to entry in China, and manufacturing in Mexico emerges as the wisest business decision.

The NAFTA impact
When it comes to eliminating or minimizing a logistics weak link, liberalized trade is also an important factor. While, according to Chase, China only participates in eight free trade agreements spanning 14 countries, Mexico participates in 11 agreements spanning a total of 43 countries.

While part of creating efficiencies along the supply chain is time, cost-savings is equally important. The fact that Mexico participates in the North American Free Trade agreements has major implications for manufacturers hoping to ease logistical complexity and save money shipping and importing goods. As a member of NAFTA, manufacturers in Mexico enjoy lower tariffs and fewer import and export restrictions.

Manufacturing and globalization go hand-in-hand, and supply chain efficiencies remain top of mind for businesses that hope to improve their bottom lines. When it comes to the very real logistics weak link that often hinders business growth, Mexico provides a clear solution for manufacturers across many industries.

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