A Cooperative Approach to Supply Chain IntegrationBy Alberto Robles | Thu, 03/11/2021 - 13:00
Without a doubt, Mexico has an excellent reputation in terms of manufacturing capabilities. It’s no secret that we have a very capable labor force at a competitive cost that makes our country a great option to establish manufacturing facilities. That is the case of the automotive, aerospace, medical devices and electronics industries, among others.
When we refer to the aerospace industry in Mexico, we need to acknowledge a series of factors that represent an important challenge for sustainable, long-term industry development. One of the things that I have learned in my current position is that, in fact, we are not very competitive when we talk about cost.
Competitiveness should be evaluated from a total landed-cost perspective, and that’s where we fail. Even though our geographic location is privileged, the lack of supply chain integration in Mexico affects our ability to be cost competitive in the marketplace. What this means is that as a country, we do not have all the required processes to fulfill an order as an integrated solution; we need to source all those capabilities from abroad, which necessitates that our parts cross geographical borders, sometimes up to five or six times. In this particular example, logistics costs directly affect the cost competitiveness that we may have achieved.
Access to raw materials at a competitive cost with adequate lead times and the absence of certified special processes are common problems that we face in our country. One of the challenges with raw materials is that only big companies, such as OEMs and Tier 1s, have enough leverage to access more competitive costs; however, the majority of the suppliers in Mexico are small and medium enterprises (SMEs) that do not have the scale to get a good deal from vendors of raw materials. This situation eventually translates into non-competitive quotes that push the sourcing teams to procure what they need from other, better-integrated regions.
Typically, OEMs and Tier 1 companies sign long-term agreements with raw-material vendors that enable their suppliers to access preferential pricing. This pricing helps them become more competitive. However, not all the big companies are willing to sign these deals, especially when there are other best-cost regions with the right strategies in place to support the industry, including access to cost-competitive raw materials.
In the case of Mexico, I think we should develop a nationwide raw materials strategy that effectively enables the SMEs to be more competitive in terms of cost and delivery times. In my opinion, this effort would accelerate the growth and development of our aerospace industry.
The other challenge that we face is that we do not have enough qualified companies for special processes, heat treatments and other secondary processes, such as certified welding capabilities. In the last few years, I have observed several players in the Mexican ecosystem starting to vertically integrate some of these critical capabilities. This sounds great for these companies because they improve their competitive position in the marketplace but there isn’t enough critical mass of vertically integrated companies to accelerate the development of the industry. This could be an interesting approach if companies pursuing this path were willing to offer these critical capabilities to the whole industry.
I truly believe that the right approach should be more cooperative rather than competitive. In fact, we should be cooperating locally while competing globally with other best-cost regions but in reality, it seems that the exact opposite happens: we compete with our neighbors across the street and collaborate with companies outside Mexico to be able to offer an integrated solution.
It is clear to me that we need to drive a mindset shift. I strongly believe that if we worked together as one team, we would be able to create better supply chain integration opportunities. Aerospace clusters in Mexico are critical to achieve this purpose because they have the ability to lead the change in their respective regions while connecting with others. We could use one region for special processes while using a different region for hardware manufacturing. The leadership of these clusters, but also their willingness to coordinate efforts with the other regions, would definitely set the conversation in the right direction.
It would be ideal for each region to be fully integrated but it makes more sense to leverage the strengths of each region and put them together so we can be in a better position to compete globally while collaborating locally. This is the only way I can see to speed up the development of our industry if we want to compete with developed economies and other best-cost countries.