What do Mexican Suppliers Want from the Aerospace Industry?By Carlos Robles | Thu, 07/30/2020 - 09:00
One thing the COVID-19 pandemic has changed among many others is the structure of global supply chains. One of the most impacted is the aerospace supply chain. Unlike other industries, in aerospace there is less, or even no inventory, as the value of parts is usually very high. It is an industry with very low volumes but very high customization, and many patents and unique designs by type of aircraft regardless of function, which means having single-source suppliers and no option to buy somewhere else. On top of all these characteristics, the level of vertical integration is very low, which means that often, a small part must be sent to up to five or six different locations to be processed and those sites are sometimes not even on the same continent.
A few years ago, the big companies targeted lower costs by opening operations in low-cost countries. The offshore strategy to take some of the processes to Asia, mainly China, was a trend that usually produced good financial results, although technical challenges always appeared. One thing the pandemic showed us is that the farther away your suppliers are, the less flexible you are, especially when the integration of a part is so dispersed and far from your control. In addition, there is a lack of back-up inventory as the pace of production is very slow, complex and parts expensive. As a result, the re-start of production for aerospace components will take longer to be harmonized than many other industries.
Terms like reshoring and nearshoring are starting to appear more and more as a response to the lessons we are learning from the moment we are living. This applies not only to processes and products. It applies in the same way to services such as engineering, design and project management. We are living a moment of opportunity, and the start of the USMCA commercial agreement should help us think beyond geographical borders. There is very good collaboration between FEMIA, AIA and AIAC, the three associations of the aerospace industry in Mexico, the US and Canada, respectively. Our joint vision is that we should work together to act as a block to create a very important aerospace supply chain in North America. The results of the affectation from the pandemic plus the US’ commercial war with China, confirm that more and more parts, components, services and processes that were offshored in the past, will see a megatrend of returning close to the biggest aerospace market in the world: the US. And this is where opportunities for the aerospace sector in Mexico within the North American block will arise.
If you are a company already in the aerospace sector but outside of Mexico, then you already have ana great advantage by having contracts and the technical know-how related to parts, processes and customer preferences. This is your opportunity to increase margins by lowering costs; therefore, it might be a good idea to open an operation in Mexico. What does this country offer? Skilled labor; a unique, privileged geographical location; commercial agreements with almost with every country in the world and of course, mainly with the US and Canada; and an industrial culture started many years ago by the automotive, mining and oil and gas industries. On top of that, state governments, such as Queretaro, Nuevo Leon, Chihuahua, Baja California or Sonora, to name the main ones, are committed to providing support and to helping include your company in the local clusters that by themselves have created a very interesting and diverse network of services and suppliers around the sector.
If your company is in such a position, I strongly suggest you find a Mexican leader for that operation. That would be my best piece of advice. It will cut costs, pain, money and time. In my experience, many companies dare to open with an expatriate or somebody that is not familiar with the business environment of the country. It does not usually work. Do not take me wrong, I believe in expats for knowledge transfer, to teach processes, to coach, to make sure quality systems are well deployed, and to guarantee a good start to operations. But the business environment in Mexico is complex and having somebody local, with good relationships, that is well-known and with a mature understanding of the politics, economics and culture of Mexico, both in and outside of various organizations, would be the best investment to open that operation. I strongly suggest getting in touch with FEMIA or the local clusters at the state level for business intelligence and advice. We have seen many companies come in and through those experiences, we understand the challenges, issues and where to find help. Moreover, one of our functions, apart from promoting investment in the country, is to provide guidance to new companies and ease the start of new operations.
For Mexican companies that already have some industrial processes and want to diversify their operations and start being a supplier to the aerospace industry, the first step is to get certified. If you are ISO-certified or similar, you have already covered a big part of the way. With that, AS9100 and Nadcap, the two most-requested quality system certifications by the industry are not that far away. These have some differences related to traceability, quality control, skills certifications and documentation, which are more intensive compared to other industries. You might need a couple of tweaks here and there but you can be certified, which is the passport to navigate doing business and being able to be selected as a supplier for the industry.
I do not want to minimize the effort, but certainly the fact that there is already a certified quality system, and that the organization is used to thinking about norms and standards, is in my view, already a huge step forward. I have seen that the biggest challenge for such companies is having the humility to accept help or feedback from the people already in the sector. It really has made a difference for those companies that have been successful in the transition from other industries to have the support of specialists able to provide insight, market intelligence, process orientation, forecasts for capacity and capabilities, and especially, understanding of the investments, ROI cycles, costing and pricing. Again, FEMIA and the state clusters are always willing and able to support with the help of the buyers from the main aerospace companies in Mexico.
The pandemic certainly will be remembered as a fact that changed the configuration of supply chains around the world. If we want to own our future, this is the time when we need to create it. Being able to do so will guarantee not only that we will be ready for new challenges with the power to stop the world, but certainly we will also be stronger as a North American supply chain block for the aerospace industry, and Mexico should be a key part partner for success in the region. We all need to work to influence the governments of the three countries in the USMCA commercial agreement to see the opportunity for the economic reactivation of the region and join our strengths to the effort to create the proper environment for the idea to flourish. You can rest assured that at FEMIA, AIAC and AIA we are already working on it; however, any support, addition or push will always be welcomed.