We’ve discussed what US buyers should know about sourcing from Mexico vs. China, and how Mexico is quickly closing the cost cap for machined components with sourcing expert German Dominguez. Behold, the conclusion! German will speak on Day 2 of our upcoming commodity risk conference.
MetalMiner: Can you give us an example of an actual metal category case study that would help a buying organization consider reshoring/nearshoring?
German Dominguez: The first and most obvious type of category that comes to mind are large and heavy metal fabrication weldments with machining and secondary operations for the construction/mining/agricultural OEM business sectors, as well as for the oil and gas industry. Also, sheet light metal fabrications are another good candidate for rehsoring/nearshoring as the difference in price can be offset easily.
But specifically, aluminum fabrications seem to have the most advantage over China and I have sourced some programs were Mexico has been able to directly compete with China on piece price alone, which is very difficult to achieve.
Large hot open die forgings also make sense for Mexico and large machined steel castings (but not so much iron castings).
Lastly, I have had a very good success rate with aluminum die casting from Mexico. The prices for this category have been very competitive lately against China and, in some cases, lower, which means that by nearshoring this category to Mexico from China, you most likely can achieve a cost reduction.
Copper tube, fabricated/brazed assemblies and, most recently, electrical motors are also good categories for sourcing in Mexico. Just keep in mind that you will need to “work” in developing a relationship first to get the Mexico suppliers to perform at this level for you. Don’t expect to send an RFQ and get the first returned quotes to be competitive.
MM: In a recent survey conducted by MSC Industrial Supply Company and Industry Week Custom Research, 49.3% of manufacturing executives listed “raw material costs” as the top market pressure they face – by far the biggest category. Based on that and your response above, can nearshoring (or, buying from Mexico, not China) help take more commodity price risk off the table for US-based buyers?
GD: One of the ways you can reduce the commodity price risk by sourcing from Mexico is with the implementation of vendor-managed inventory and consignment agreement. Another way would be to increase the frequency of the deliveries and reduce the minimum order quantities. These strategies are not practical to do with China suppliers. Mexico is one of the most politically stable countries in Latin America and this is a contributing factor in reducing the probabilities for commodity price risk.
Learn much more from German, Harry Moser (Reshoring Initiative), and others at the conference – click below!