I’m not talking about a yummy pico de gallo sauce, though I have no objection to it. I’m talking about a new breed of company calling El Paso and perhaps other US border cities and towns home. A friend of mine who sources machined parts, plastics, fabrications etc in Mexico expressed some frustration when a potential US client of his decided to not move forward with a Mexico-sourcing initiative. The US buying company fears the growing violence in Mexico. My colleague acknowledged he could understand if a company had their own operations in Mexico but just sourcing parts?
Well sure, I told him these days companies pay close attention to supplier risk and supply assurance. They don’t want anything happening to themselves or their people while they travel in Mexico, hence the hesitation to start up a program there, even with compelling savings. Our discussion evolved into the fact that many small Mexican suppliers are selling their companies in Juarez, due to extortion by the drug lords or the Mexican Feds (yes, the Mexican Feds have numerous problems in terms of corruption). These old suppliers then re-establish themselves in cities like El Paso. And according to my friend, often times the cost structure appears more attractive than in Mexico! The real estate, electricity, natural gas, raw materials and now of course the transportation all create savings opportunities. These former Mexican smaller suppliers see an overall cost savings by doing business this side of the border!
In addition to cost savings, easier access to US credit (despite our credit crunch) makes establishing a business in the US both more affordable and viable (lending rates in Mexico remain high in comparison). In addition, these new business owners in the US can buy better technology and newer equipment compared to what they could purchase in Mexico. This contributes to better productivity, less scrap and faster cycle times. From a labor perspective, here is what my friend had to say, “When you buy a brand new Davenport or Swiss-type CNC machine this type of equipment runs almost automatically. So the three operators once required to machine the same part in three different outdated, slower machining centers in Mexico are reduced to just one machining operator that can take care of several machines. Most of them [suppliers] estimate that one good US trained shop foreman can replace up to five not so competent machinists in Mexico.”
So what has clouded the Mexico sourcing picture ” the economy or crime? Nobody knows for sure. On the one hand, a Juarez trade representative attributes the lack of activity to the economy. But then again, of course he would say that! I wouldn’t expect a trade representative hired to promote business in Juarez to say, Yes folks, we’ve had 2000+ murders in the past twelve months but everything is under control. My friend believes many of the smaller companies have left Mexico because of crime whereas the big companies have pulled out due to the economy and declining volumes such as this story about Lexmark. The truth, likely somewhere in the middle, involves a bit of both a poor economy and crime.
All of this begs the question, for US companies still sourcing in Mexico, how has the supply picture changed? For some, it may not change much. But for others, they find themselves with the same suppliers, albeit with new owners. Will the new owners produce parts with the same level of quality? My friend thinks not. And what to become of these Mexican companies who now set up shop in El Paso to re-create their businesses? Well, if that isn’t Buy American, I don’t know what is!