Messing with Mexico is a Mistake

Messing with Mexico is a Mistake

For every supply chain executive adding jobs in Mexico, 2.4 are also creating jobs in the United States. In fact, among 129 managers who said Mexico was one of their top three countries for planned hiring over the next three years, 81 said their top overall country for new job creation was the US – Mexico was second or third. As for those who are actually shifting work southward, this group is less than 5% of our total sample of 1,179 supply chain executives worldwide.Infographic illustrating how many managers are planning to add supply chain jobs in Mexico over the next three years.Mexico is the second largest exporter to the US. It’s also the second largest importer from the US. Michigan, which shares a border with Canada, is the third-ranked state in terms of exports to Mexico. This is mostly auto parts bound for assembly into finished vehicles.

A huge portion of everything we produce and consume – from natural gas and food to cars and computers – makes its way across the border, often more than once. The North American supply chain ecosystem is so intertwined that simplistic efforts to force business to alter hiring plans will almost certainly end badly.

Costs will go up, supply availability will suffer and companies will respond with even faster moves to robotics and automation.

Staying the Course

A Wall Street Journal headline this week read: “Companies Plow Ahead with Moves to Mexico, Despite Trump’s Pressure”. The reporting includes examples of companies both well-known (Caterpillar, General Motors, Ford) and obscure (Rexnord, Nucor, Manitowoc) whose plans for Mexico remain largely on track, despite uncertainty surrounding NAFTA and relations across the Rio Grande. The net effect is primarily added risk for supply network planners whose mission is all about serving customers and shareholders, not public perception.

They’ll plow ahead because macroeconomic and technology trends have been driving a pullback from low-cost country sourcing for nearly a decade already. In fact, Gartner (then AMR Research) hosted its 2008 Supply Chain Executive Conference with the theme ‘Globalization Comes Home’, featuring former Mexican President Vicente Fox as the keynote.

In 2013, SCM World conducted a detailed manufacturing footprint study that flagged rising risks related to intellectual property, long transport distances and disconnects from end-customers as reasons to re-shore manufacturing. The focus at the time was on exiting China. The biggest beneficiary of re-directed investment? Mexico.

Regional Strategies, National Tactics

A newish trend in supply chain is the establishment of regional ’control towers’, which combine loads of visibility, collaboration and analytical technology with people tasked to spot and solve supply-demand imbalances as they happen. The idea is to break the habit of scheduled decision-making supported with batched data, and replace it with a concurrent approach that addresses problems and opportunities while there’s still time to react.

The fact that these are almost always regional should be no surprise. Real-time changes to a production schedule, delivery route or service call make sense so long as distances and market characteristics are within realistic reach. Knowing that you’re nearly sold out of something is useless unless replenishment stock can be had within days or even hours. Military strategists think in terms of ‘theaters’ for a reason: proximity matters.

The typical regions seen in this construct are continental. Asia Pacific, Europe, the Middle East and Africa (EMEA) and Americas usually comprise the big three. As regionalization takes root, however, it’s becoming more common to see six to eight control towers based more explicitly on contiguous geographic markets. Marc Engel of Unilever, for instance, described such a design at our recent SCM World conference in Miami.

Mexico is clearly part of the North American theater of operations with obvious benefits in terms of cost, capacity balancing and market access for supply networks built to span everything from Yukon to Oaxaca. Impeding the flow of material across borders that are purely political confounds operations logic. Money and time will be wasted for sure.

Jobs, Jobs, Jobs

Supply chain people will keep going whatever the rules. Messing with Mexico won’t create jobs. It may enhance the payback on automation. It may reduce the attractiveness of North America as a market. It will not persuade anyone to hire unskilled labor at $30/hour.

Author Kevin O'Marah

Chief Content Officer, SCM World

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