How to Boost Local Supplier Network's Capabilities?Fri, 09/01/2017 - 12:29
Foreign investment has strengthened the local supplier base with leading international Tier 1 and Tier 2 suppliers. However, the country has failed in building its own provider network to address the needs of these larger companies. Investors agree that although Mexico presents attractive business development conditions, raw materials and other components must be imported to build products at an affordable cost and with the quality the industry desires. What should be the priorities while building Mexico’s supplier base? Companies also have that well-defined after years of trying to decrease costs and provide an added value to their customers.
Mexico has developed complete production lines from Tier 1 to Tier 2 and 3 suppliers, moving away from its original maquila idea. Engines, seats, control panels and many other components can be completely manufactured in the country from the tiniest wire to its connectivity features. Most OEMs have based their strategies on quality, costs and logistic advantages. Quality has to be the main driver for the local supply chain, along with the possibility of being a benchmark in terms of costs. Communication and integration are also vital for any client throughout all levels of the production, design and logistics process. Advanced manufacturing operations must also be a priority. Software and basic engineering processes are still carried in the companies’ headquarters. However, each day more and more universities collaborate with companies to encourage innovation and entrepreneurship among students.
Mexico has made huge progress but there is still a long way to go. Our local content has increased by double-digits in the last four years and although the market’s development has boosted this, our own involvement in the local supply chain has made a considerable difference. Our goal is to help suppliers enough to create added value for us. We need more Mexican suppliers that want to become international players. This should be the business plan of any new industry participant, going beyond supplying Mexico to the rest of the region or even world. This takes time, however, and requires better financing schemes for small and medium-sized corporations here. The country has made progress in this regard and the government is already ahead of other Latin American countries where central banks remain part of the corporate financing structure.
At a Tier 1 and Tier 2 level, the local production chain is robust and most of our competitors are already in the country. But we do see opportunities for Mexico to grow in raw material supply at competitive prices. Stainless steel, for example, is hard to come by locally, as are quality tooling components and manufacturing equipment. The biggest opportunity for Mexican companies lies in product and technology development. The country has become highly competitive in manufacturing and assembly but growth is only sustainable if the industry moves into added-value activities. Most R&D and engineering facilities are located outside Mexico so the moment the global industry finds a more cost-effective way of manufacturing components than those applied here, the country will lose its competitiveness.
There are several factors that could greatly benefit our global competitiveness, among them the development of a high-tech raw materials national supplier network. Our industry requires high-grade, specialized steel, which unfortunately we have to import to satisfy our clients’ demand. Currently there are no companies in Mexico producing such raw material specifications, or if available, they cannot supply the large volumes the industry needs. The Mexican supplier network needs to revisit the top 10 or 20 needs of the industry considering what is being imported to Mexico in processed or semi-processed form and setup discussion forums to properly address those needs in a coordinated manner.
The Mexican industry faces two pressing needs. The first is for local companies to invest in certifications and process optimization. OEMs and Tier 1s no longer focus on just-in-time processes. The goal now is just-in-sequence, which means suppliers must now become part of their clients’ production line, delivering the products the line needs in the exact moment, quality and quantity it demands. Companies that cannot meet these standards will be left out. The second priority for Mexico is to grow availability of products that are not manufactured locally. At the moment, almost 60 percent of all automotive components are imported, including electronics and casted parts. The lack of quality parts is forcing the industry to lose confidence in the capabilities of the local supply chain, incentivizing imports.
Local industry faces two main challenges. Mexico is full of good suppliers that are too small to participate in the production supply chain. These players do not have the right infrastructure to promote their products or supply the large volumes customers require to the right quality standards. As a result, they fall short when competing against international companies. The country also needs to learn how to utilize the skills of Mexican engineers to grow in segments where Mexico is not currently participating. Tooling manufacturing is an area of opportunity. The country has the talent to design these components but we still cannot compete with markets like Portugal and China on price. Development of the local supply chain will only occur with training for companies and if large Tier 1s and OEMs share their best practices with smaller players.
OEMs come to Mexico accompanied by their Tier 1, Tier 2 and sometimes even Tier 3 suppliers, creating a strong international supplier network. However, the country has neglected the development of its own local suppliers. Mexico has a strong incentive strategy oriented to foreign players while local SMEs receive little support when establishing business lines or when looking to enter the automotive industry. The government needs to change that if we are to develop our local supply chain. At the same time, Mexico must continue attracting investment related to research and engineering activities. These kinds of projects have gradually become more common and they are a crucial factor in developing the country’s supply capabilities