This weekend we had a chance to catch up with a partner of ours, German Dominguez, who is based out of Juarez, Mexico. Dominguez sources parts on behalf of American companies. This is Part Two of a Two-Part interview. You can read Part One here.
MetalMiner: Based on your success, it might appear as though Mexico is starting to gain the edge over China. Is that the case?
German Dominguez: Out of my personal experience, it has taken me two years to gain the trust of my supply base, so now my suppliers really work hard to try to win a new project. That 100 percent margin that they used to quote is now between 15-20 percent so that I can secure the business. Because of these relationships, the partnership, if you will, my suppliers are much more competitive than they were previously.
MM: US firms are now looking to Mexico again for quotes. It appears that there are more inquiries and quoting activities going on. What are you seeing?
GD: I do think there is more quoting activity, but I don’t think that US companies can move programs quickly. Of course, wanting to move something to Mexico and actually moving it are two totally different things. Mexican suppliers will work with American buyers, but it’s important to remember that Mexican suppliers are very time-consuming and/or high maintenance, if you will, during the initial phase, whereas American buyers are not used to that kind of process. For example in the US, a company might send a RFQ to 10 domestic companies and definitely at least five will respond. The same process in Mexico will result in only 1-2 suppliers participating. You would have to really pursue and chase a Mexican supplier until they get to know you very well. A quote from a Mexican supplier might take 3-4 weeks, while a quote from China may only take 3-4 days. Eventually a Mexican supplier will forget about the RFQ if the American buyer doesn’t stay on top of it. So for the initial supplier development process, the effort level appears as follows: 80% American, 20% Mexican, but that can switch over time. It takes about 1-2 years to truly gain and establish a partnership with a supplier in Mexico. But what is important to keep in mind is that US buyers have advantages over Mexican buyers because Mexican suppliers will give more attention to foreign buyers. The Mexican supplier may be interested in growing export business or doing business in USD.
MM: Do you feel that looking at total landed cost is the key to making the right award decisions between the two countries?
GD: I’m not a big believer in total landed cost. Why? Generally speaking, I see a large enough differential on the piece part price that I don’t need to use a total landed cost model. However, that is changing now as we speak. When the delta between the Chinese and Mexican piece part price falls between 12-15% of each other (depending on volume and parts) a total landed cost model makes a lot of sense. But not until the prices are within that range; it’s irrelevant. The issue is that the China price is changing, not Mexico.
MM: How much cheaper is Mexico-to-the-US vs. China-to-the-US from a logistics perspective? How does that make/break a deal — or does it?
GD: Mexico is not a low-cost freight country. On a kilometer-by-kilometer basis, China ships more competitively than Mexico. But because Mexico is so much closer to the US, it tricks the buyer into thinking that freight from Mexico is proportionally cheaper than freight from China. Diesel gasoline, taxes and freight rate tolls are all very expensive in Mexico. So freight may not be as big a factor as the popular media would lead one to believe!