Tuesday, 04 September 2012 03:30

Success south of the border

When Mexico makes headlines these days, it’s usually for rare but shocking drug-related violence. Unfortunately, this dark spot has blocked an expanding bright spot that is helping many U.S.-based global manufacturers to stay competitive. A variety of companies have set up plants south of the border and are counting on Mexico’s proximity to the United States, cultural similarities, and highly skilled and motivated workforce to fuel growth plans that support domestic job security.

According to the manufacturing trade journal IndustryWeek, foreign direct investment in Mexico rose 9.7 percent in 2011 compared with 2010 to reach $19.44 billion. After a 5.5 percent growth rate in 2011, the Mexican economy is expected to grow 4.5 percent in 2012. Mexico is still considered a lower-cost option compared with the United States, but increasingly, manufacturers are putting production in Mexico for other competitive advantages that benefit the entire company, including U.S. operations.

One such company is Santa Fe Springs, Calif.-based Phillips Industries, which makes customized and off-the-shelf electronics for the transportation industry and has operated a plant in Saltillo, Coahuila, Mexico, since 2007.

Phillips Industries manufactures customized trailer harnesses at its Saltillo plant, which accounts for about 25 percent of the company’s volume. Phillips Industries became interested in Mexico in 2006 when attending an open house at a Mexican plant operated by one of its customers. The customer was encouraging its suppliers to site facilities in Mexico. Simultaneously, Phillips was dealing with performance problems at a Dallas plant that seemed to have a low probability of quick resolution.

Rob Phillips, vice president of global operations, said the decision was made to shut down the Dallas plant and move production to Mexico, and the company opted for a “shelter model” to set up and run the operation.

Fundamentally, this model mimics outsourcing, but the manufacturer maintains control of critical functions such as business processes, strategy planning, hiring decisions and product-specific parts and materials procurement. The shelter company handles the administrative side of setting up and managing a plant: permitting and regulation, the importing and set-up of production machinery, utilities relationships and even employment.

Beyond cost savings, the biggest benefits of a shelter model are that manufacturers can launch production much faster, the entire process of setting up a foreign site is simplified and handled by experts, and the producer can devote resources to core competencies and serving customers.

Phillips chose The Offshore Group, which runs two industrial parks in addition to Saltillo, at Guaymas/Empalme, Sonora, and Guadalajara, Jalisco. Rob Phillips said the speed with which the Saltillo plant was set up and began production provided a huge advantage over going it alone.

“We began negotiating in a meeting September; we signed a contract on Halloween day; and we were up and running by the beginning of the next year,” he said. “The decision to move production was a quick decision, and The Offshore Group kept pace with us. We were a company with no experience operating in Mexico, and we were able to set up a world-class facility in a short period of time.”

Phillips said going with the shelter model shortened set-up time because The Offshore Group winnowed job applications to those that matched Phillips’ criteria and needs, imported and set up production machinery and handled all other “localized” aspects of setting up shop in Mexico.

When companies such as Phillips Industries can shorten set-up time for a new facility, it can begin fulfilling customer orders sooner, which in turn shortens the return-on-investment period for up-front costs. As a result, the new operation begins contributing to profitability and cash flow sooner.

Having a shelter facility in Mexico shortens cycle time on other key metrics compared with locating a facility in an overseas location, such as Asia. For example, Rob Phillips said the lead time for Phillips’ customized trailer harnesses that are made in Saltillo is four to five times shorter than competitors’ lead times. Both the shorter shipment route (no ocean to cross for North America) and similarity of time zones, language and cultural factors play into that advantage.

Additionally, Rob Phillips said he has had no problem finding enough properly trained and educated employees. In fact, they are more educated than U.S. professionals in some ways.

“We've hired several people right out of college who have been directly educated on lean purchasing for the automotive industry, and I've never seen that anywhere else in the world," Phillips said. "If I need to hire someone, I have an incredible pool of people who are interested and have the experience we need. I'm not having to look for a production manager for six months. I look maybe for a week and a half. I might get four or five very qualified resumes of English-speaking people who really understand lean and are what I am looking for."

In some cases employees work directly for the manufacturer, while in others they work for the shelter company. Phillips’ employees work for The Offshore Group on paper, but Rob Phillips said they are just like his own employees.

"The shelter actually employs them, but for all intents and purposes, they are Phillips employees. They get a check from the shelter, but they are very loyal to our company and invested in the business."

Ideally, manufacturers searching for a shelter partner should look for a complete, turnkey solution that allows them to focus on their products and not plant maintenance. For example, Phillips has been able to concentrate on building a pool of local strategic suppliers for materials and components—those that add to customer value—while The Offshore Group handles less-strategic MRO procurement.

“We have had so much success in Mexico that we are constantly looking at what products can we move there,” said Rob Phillips. “There are discussions of moving some of our products for European customers from Shanghai to Mexico because it cuts lead time in half.”

Published in Los Angeles
Tuesday, 04 September 2012 03:30

Better because of Mexico

When Mexico makes headlines these days, it’s usually because of rare but shocking drug-related violence. Unfortunately, this dark spot has blocked an expanding bright spot that is helping many U.S.-based global manufacturers to stay competitive. A variety of companies have set up plants south of the border and are counting on Mexico’s proximity to the United States, cultural similarities and highly skilled and motivated workforce to fuel growth plans that support domestic job security.

According to the manufacturing trade journal IndustryWeek, foreign direct investment in Mexico rose 9.7 percent in 2011 compared with 2010 to reach $19.44 billion. After a 5.5 percent growth rate in 2011, the Mexican economy is expected to grow 4.5 percent in 2012. Mexico is still considered a lower-cost option compared with the United States, but increasingly, manufacturers are putting production in Mexico for other competitive advantages that benefit the entire company, including U.S. operations.

One such company is DCM Manufacturing Inc., a Dreison International Co. company and a leader in manufacturing, sales and service of OEM products for the mobile HVAC and industrial heat-transfer markets. Corporate offices are in Cleveland and Grand Prairie, Texas.

DCM manufactures fractional horsepower motors, centrifugal blowers, axial fans and plastic louvers its Mexican plant, about $1 million a month in product.

DCM became interested in manufacturing in Mexico in 2008, and in 2009 decided to work with The Offshore Group – a manufacturing support, or “shelter,” services provider – to move into an existing plant that had been occupied previously by an injection molding company. The move was to better serve large OEM clients that were starting to prefer North American suppliers with near-shored operations because of the longer lead times and ensuing complexities and costs of sourcing from far flung, Asian-based operations.

Fundamentally, the Mexico shelter business model mimics outsourcing, but the manufacturer maintains control of critical value-added functions such as manufacturing processes and quality control, strategy planning, hiring decisions and product-specific parts and materials procurement. The shelter company handles the administrative side of setting up and managing a plant non-core functions: permitting and regulation, the importing and set-up of production machinery, utilities relationships, payroll and benefit management and even the recruitment of both direct and indirect labor.

Beyond cost savings, the biggest benefits of the Mexico shelter model is that manufacturers can launch production much faster; the entire process of setting up a foreign site is simplified and handled by experts; and the producer can devote resources fully to core competencies and serving customers.

Joe Golla, Vice President of Strategic Planning & Global Sourcing for DCM, said the decision to go with the shelter model as opposed to opening a greenfield site had its basis in two reasons:

“We were a little concerned that with the scale of our operation we would add a great deal of overhead with human resources, payroll, safety, union negotiations—all of those things that are attendant to operating in Mexico,” Golla said. “That would have been a lot of overhead relative to our volume. We lacked the expertise, and we were impressed that The Offshore Group had that infrastructure in place. We decided we would ride that infrastructure—for a fee of course, but it was still less expensive than if we had done it ourselves.”

The other lure was the plant opening in The Offshore Group’s Bellavista Industrial Park in Empalme, Sonora. In addition to this industrial park, the company owns and operates two others: The Roca Fuerte Industrial Park in Guaymas, Sonora, and The La Angostura Industrial Park in Saltillo, Coahuila. The Offshore Group has recently begun offering its services in Guadalajara, Jalisco.

“The space was already wired and plumbed for injection molding, and we took over an experienced management team and workforce, which was very important to us,” Golla said.

DCM’s Empalme workforce flexes between 75 to 90 people, but the company is adding 15 to 30 people because they are relocating some work now done in China. Golla said production is running at only 50 percent of capacity, but that’s by design because the company expects more work from the Latin American market, which is growing and needs the types of HVAC components (transportation, construction and agricultural vehicles) that DCM supplies.

“We expect that capacity to be filled in short order because we are in a position to offer the larger customers and OEMs a completely non-dependent-on-Asia model,” Golla said. “In Latin America there’s a 20 percent duty on products from China, so we were able to immediately drop our costs by 20 percent by near-shoring.”

Those that think DCM’s near-shoring strategy is taking jobs away from U.S. workers would be surprised to learn that the opposite is true. With the emergence of a global economy, companies have had to build global operations. DCM’s near-shoring model is not in place to push down costs as low as possible—rather, it’s to respond to the needs of their global clients.

“Our model is not Mexico-dependent,” Golla said. “Our parent company has greatly expanded our manufacturing opportunities in Cleveland and elsewhere in the U.S. We have stocking facilities in the U.S., and our sales, engineering and other technical positions are in the United States. And we’re hiring in those areas.”

Published in Cleveland
Tuesday, 04 September 2012 03:30

Low-cost and lots of room to grow

When Mexico makes headlines these days, it’s usually because of rare but shocking drug-related violence. Unfortunately, this dark spot has blocked an expanding bright spot that is helping many U.S.-based global manufacturers to stay competitive. A variety of companies have set up plants south of the border and are counting on Mexico’s proximity, cultural similarities and highly skilled and motivated workforce to fuel growth plans that support domestic job security.

According to the manufacturing trade journal IndustryWeek, foreign direct investment in Mexico rose 9.7 percent in 2011 compared with 2010 to reach $19.44 billion. After a 5.5 percent growth rate in 2011, the Mexican economy is expected to grow 4.5 percent in 2012. Mexico is still considered a lower-cost option compared with the United States, but increasingly, manufacturers are putting production in Mexico for other competitive advantages that benefit the entire company, including U.S. operations.

One such company is Miamisburg, Ohio-based CBC Connect, a global supplier of wiring harness design and assembly, and value-added electrical products. The company employs 150 people at its Saltillo production plant, which ships mostly to customers in the United States, but also to some in Canada and China. (CBC Connect is owned by WESCO Distribution Inc., which employs roughly 6,000 people globally.)

“Having a manufacturing location in a low-cost country helps us to win business,” said Jeff Trosper, CBC Connect Branch Manager. “In addition, the La Angostura Industrial Park, where our plant is located, provides room for us to grow. They owners (The Offshore Group) have plenty of land, so we won’t outgrow our available space because the space is virtually limitless.”

CBC Connect has been manufacturing in Mexico since 2004. The company uses a shelter company in Mexico, The Offshore Group.  In addition to the La Angostura Industrial Park in Saltillo, The Offshore Group operates industrial parks in Guaymas/Empalme, Sonora. The company has also begun to offer its outsourced manufacturing support, or “shelter,” services in Guadalajara, Jalisco.

Fundamentally, the Mexico shelter business model mimics outsourcing, but the manufacturer maintains control of critical functions such as manufacturing processes and quality control, strategy planning, hiring decisions and product-specific parts and materials procurement. The shelter company handles the non-core function administrative side of setting up and managing a plant: permitting and regulation, the import and set-up of production machinery and raw materials used in production, utilities relationships, the recruitment of both direct and indirect labor and even the payment and benefits administration of employees.

Beyond economies-of-scale cost savings, the biggest benefits of the Mexico manufacturing shelter model are that manufacturers can launch production much faster; the entire process of setting up a foreign site is simplified and handled by experts; and the producer can devote resources to core manufacturing competencies and serving customers.

“The shelter company takes care of everything from human relations to provision of manufacturing space to local purchasing for MRO and more,” Trosper said. “It would be very difficult for us to assume these responsibilities state-side, and do them correctly according to local regulations. The shelter company comes at a cost, but being able to focus our efforts on other facets of the business is beneficial.”

Another Ohio-based company, DCM Manufacturing Inc., Cleveland, has also found that the shelter model supports its strategy of focusing on what adds value for customers.

“We were a little concerned that with the scale of our operation we would add a great deal of overhead with human resources, payroll, safety, union negotiations—all of those things that are attendant to operating in Mexico,” said Joe Golla, Vice President of Strategic Planning & Global Sourcing for DCM, which manufactures fractional horsepower motors, centrifugal blowers, axial fans and plastic louvers at its plant in The Offshore Group’s Bellavista Industrial Park in Empalme, Sonora—about $1 million a month in product.

“That would have been a lot of overhead relative to our volume. We lacked the expertise, and we were impressed that The Offshore Group had that infrastructure in place. We decided we would ride that infrastructure—for a fee of course, but it was still less expensive than if we had done it ourselves.”

For DCM, a Mexico-based manufacturing plant enables the company to offer shorter lead times, a less expensive product, and a less time-consuming and complicated partnership model than an Asia-based plant for its large OEM customers in the transportation industry. Golla said the Empalme plant is running at 50 percent capacity right now, but that won’t last long.

“We expect that capacity to be filled in short order because we are in a position to offer the larger customers and OEMs a completely non-dependent-on-Asia model,” Golla said. “In Latin America there’s a 20 percent duty on products from China, so we were able to immediately drop our costs by 20 percent by near-shoring.”

Those who think a near-shoring strategy is taking jobs away from U.S. workers would be surprised to learn that the opposite is true. With the emergence of a global economy, companies have had to build global operations. DCM’s near-shoring model is not in place to push down costs as low as possible—rather, it’s to respond to the needs of their global clients.

“Our model is not Mexico-dependent,” Golla said. “Our parent company has greatly expanded our manufacturing opportunities in Cleveland and elsewhere in the U.S. We have stocking facilities in the U.S., and our sales, engineering and other technical positions are in the United States. And we’re hiring in those areas.”

Published in Cincinnati