A Client’s Perspective: Three Tips to Consider when Setting Up Operations in Mexico

By Sandra Malottky | Chihuahua Business Development Manager at American Industries Group®
Published 07/06/2022

If you are looking into manufacturing in Mexico to make your company more competitive, we’d like to share with you some tips from a client’s perspective that can help you in your decision-making process.

Once you’ve decided that Mexico is right for you, you can be up and running in less time than you might think and expect the entire migration and ramp-up to achieve output parity with corporate operations to take between 18-24 months. Of course, this is just an estimate. The speed of all migration plans depends on the level of support from corporate leadership, the quality and expertise of the migration team, and other external factors.

Business case analysis

Tip 1: Business case analysis and setup optimization

Before making a decision, you will need to do your due diligence. This includes carrying out a business case analysis and analyzing your setup optimization. This process is done internally and is carried out with the goal of obtaining approval from the company’s executive team to move operations to Mexico. Many times this decision is not a proactive process but rather the result of external macro factors, such as a recession or declining profitability. Another reason to move operations offshore is offsets. Regardless of if the decision is motivated by cost, competitiveness, or offsets, almost every company can benefit from moving or expanding operations to Mexico.

When looking at setup optimization, a company must decide what processes they will carry out in Mexico, such as highly manual processes or manufacturing new product lines. Given the competitiveness of Mexico’s labor rates, parts and assemblies with a higher labor content will inevitably be cheaper to produce here. For new product lines, companies have discovered opportunities beyond labor savings and are embracing the concept of outsourcing innovation.

The main reason many companies are finding it increasingly attractive and profitable to leverage Mexican innovation is the country’s focus on continually improving processes. By having the right talent pool, you can innovate in processes rapidly and effectively. For example, in Mexico, you can quickly hire app programmers to develop whole programs with a high level of digitalization and the personnel to launch entire product lines faster and with significant cost savings compared to the United States. Mexico’s agility in processes and personnel is a crucial consideration when analyzing your company’s business case and how and what to outsource.

Manufacturing in Mexico is safe, reliable, and state-of-the-art

In analyzing your business case, another consideration is facility specs and a possible expansion plan. Most companies start small and grow organically over time. To make this process as easy as possible and lower the learning curve, companies can hire a provider of shelter services in Mexico like American Industries. Shelter companies take care of all back-office, administrative, legal, tax, and compliance issues and provide insight on cost, site selection, and planning, among many other benefits.

Tip 2: Create a Training Plan

By creating a training plan ahead of time, you can find the right team locally to ensure smooth knowledge transfer to the new facility. When doing this, it is important to consider and find ways to overcome language and cultural barriers and look at ways to transfer tribal knowledge. The first step is to form an initial team to implement your first production process.

Once you have located this initial team in Mexico, you should send your new team to the company’s main facilities in the home country for 2 to 3 months. This is the best way to transfer process knowledge and understanding and allow sufficient time to codify and communicate the company’s work instructions, thought processes, cultural approach to quality, problem-solving philosophy, and quality standards.

A critical element of the home-country training program is in ensuring you teach the Mexican workforce to understand how to flag potential quality issues. You will also want to quickly give your team a broader view of how the company works so they can improve supply chain sourcing through local providers and decrease lead times with future design changes.

Tip 3: Migration, setup and the learning curve phase

To ensure quality at new facilities, it is vital to check and address quality issues from the start of operations. While some companies in Mexico import all their raw materials and work using kits sent from the United States, other operators have taken advantage of the rich supply chain to complement existing operations and speed up production. They source everything in Mexico, from simple parts to complex metallic structures and aerostructures and special processes, outsourcing some parts to local CNC manufacturers.

You will also want to avoid using a colonization model. This is where executives from Europe and the United States take a command and control approach to running the Mexican factory. This way of thinking results in workers resenting management, followed by high turnover and the high costs this implies. Ideally, the idea is to allow the Mexican plant as much autonomy as possible.

Although parity in production capability will not happen immediately, with the appropriate oversight and duty of care from corporate, this can be achieved in around two years (depending on the process/product/assembly). After that, with a focus on continuous improvement, gains should continue. By providing structure from a cultural standpoint and improving transparency and accountability between Mexico and the US through reporting cadence, these gains in productivity and quality will be encouraging and motivating, ensuring management teams embrace the Mexican opportunity.

American Industries will help reduce the learning curve

We hope that these tips from a client’s perspective will be helpful to you. In addition, remember that in Mexico, companies have the advantage of using a shelter program to make the transition as smooth and as seamless as possible. American Industries can ensure a soft landing for your company in Mexico by helping with recruiting, site selection, and back-office administrative work. We can also help you source local supply chain providers and establish industry-specific regional alliances and agreements with clusters and other organizations. Mexico’s innovation and process improvement make it ready for the future, and American Industries is here to help you take advantage of all it has to offer.

Setting Up Operations in Mexico

Sandra Malottky

Chihuahua Business Development Manager

American Industries Group®

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