Manufacturers around the world, and particularly in the US and Western Europe, are seeking ways to defend profit margins and market share, and re-focus on core competencies to maintain their competitive advantage. To best serve North American markets, for example, many are choosing to establish manufacturing operations in Mexico. Doing so enables them to produce their goods in a low cost, yet highly skilled, production environment, in addition to being able to take advantage of NAFTA and other regional agreements.
Moreover, many companies are saving on capital expenditure by foregoing constructing their own facilities in Mexico and heavily investing in people and systems for corporate services. They are instead enlisting the services of an established Shelter Provider. Use of their services can mean that:
- The company does not have to establish its own Mexican entity.
- The company may avoid having an income tax presence in Mexico.
- Its Shelter Provider will be responsible for managing Mexican regulatory compliance issues.
- The company can nonetheless access the large, highly skilled, yet inexpensive labor pool in Mexico.
- It benefits from reduced or controlled overhead and freight costs.
- It is able to quickly establish a planned and controlled manufacturing environment.
- The company is able to concentrate on its core business of manufacturing, maintaining full operating control.
Over the years, the use of Mexican Shelter Providers has multiplied, and the number of providers offering some level of service has risen steeply. So the question is: With so many providers to choose from and such a variety of services being offered, how does one sift through the options to find that elusive pearl of a provider able to best serve the company's needs – quickly, effectively and affordably?
Operating Standards: separating the wheat from the chaff
A Shelter Provider should first and foremost have a strong customer-centric operating environment that provides premium class service to the company employing its services, and which ultimately helps that company provide world-class service and products to its clients. These important value-added customercentric services could include employing a central routing system for questions or issues with the provider's support functions in Human Resources, Payroll, Finance, Purchasing, Facilities Management and Import/Export. Such a system also allows for the capture of metrics to help track improvements in the provider's performance, enabling the company to gauge the quality of the services it's receiving.
Additionally, Shelter Providers should be asked if regular evaluations are held at plant and corporate level to measure performance. This could be in the form of customer satisfaction surveys that focus on knowledge, speed, thoroughness and accuracy. Performance metrics that focus on productivity, quality and satisfaction should also be regularly measured and reported, with targets periodically raised levels. Furthermore companies should find out whether the provider's management compensation is tied to achieving these ever-increasing goals.
Next, how are the metrics used? Is the Shelter Provider truly striving to improve year over year? How is continuous improvement achieved, and who is responsible? The Shelter Provider should be able to show a history of process changes that demonstrate how continuous improvements have been achieved over the years.
Automation should also be a strong focus, as many of the support functions the provider may offer are transactional and high volume in nature. Advanced systems can expedite execution and eliminate human error. Is the provider investing annually in new tools to improve levels of service and bring down the costs of those services? In what have they invested and how much?
Additionally, a true continuous improvement program will require regular interaction between the company and the Shelter Provider, often in scheduled meetings to determine which services can be standardized and which must be customized. This not only gives the company ongoing opportunities to communicate plans, volumes and service needs, but also allows the Shelter Provider to request the input they require from the company. These informal agreements are typically documented on an annual basis in two-way Service Agreements.
Also, does the way Shelter Provider delivers its services allow for each manufacturing client to be able to maintain its distinct corporate identity?
Ultimately the best evaluation tool is talking to the provider's clients about what specific cost savings and service improvements the provider has brought them over the years. Successful Shelter Providers may be best represented by the level of services renewed by their clients after completion of the original contracts.
Next, Choose a Model
Now that the company has whittled down its selection to a shortlist of shelter operators who are able to deliver the highest standards of service, it can begin to deliberate on the type of Shelter Provider – or type of Operating Model – that best supports its needs:
These shelters operate under a short to medium-term contract and their services are dedicated to getting a company's operation up and running. However, because they do not leverage administrative and operating services, cost savings are likely to be limited to labor.
Offsite Management Services
These shelter companies provide services to continuously support the company's operations. They will often provide a facility in one of their established locations, usually under a long-term lease. After the set-up, the company can choose from a portfolio of administrative and management services.
Management is, however, often performed from a shelter office located across town or in some cases hundreds of miles away, which can make it difficult for the provider to offer the same cost benefits of an efficient centralized operation.
Onsite Shared Services
These shelter operators combine start-up and management services with centralization to maximize economies of scale and provide a range of cost savings and efficiency. They bring several clients together in a single industrial park, and typically, since the real estate is treated as part of the operator's inventory, space requirements can be flexible. This allows the company to easily scale its operation as needed, without making a huge up-front investment in facilities.
Operators using this model are better able to leverage the resources of all of their clients. Thus, by design, Shelter Providers with an onsite, shared services model are able to offer cost-saving benefits at every level.
Now that the company has selected providers who offer the levels of service it desires within an operating model that best supports its requirements, here are a few more things to deliberate on. The company should:
- Consider the location and ease of accessibility.
- Is the location centrally located to other Mexican industrial cities, supply routes and customers?
- What is the availability of transportation services? Would the company be able to get in and out of its operations in a timely fashion? Are there transport providers who provide less than trailer-load activity?
- As energy prices increase, temperate weather becomes ever more important. Is the running of cooling or heating facilities required for long periods of the year?
- Consider the available space/facilities needed to get the operation started and possibilities for future expansion within the industrial park.
- Is the shelter operator taking into consideration the company's future needs? What happens if the company needs to expand or contract? Could the location support new processes that the company brings in five or ten years down the line?
- Consider supply chain requirements.
- Is the location near or in a regional base of suppliers and services? Having a supply base in Mexico within three hours of the location will help minimize freight and border costs.
- Is the provider able to assist with identifying, qualifying, and sourcing directly from suppliers in Mexico and the US to minimize US transportation costs? A competent US-Mexico sourcing strategy can also lead to significant reductions in distribution costs for the finished product as well.
- Consider the stability of local labor conditions.
- Do nearby educational facilities have the flexibility to work with the company? And what is the influence of the shelter operator to get the customization the company needs?
- What are the wage level and bene fits costs?
- Is it a cooperative labor environment with low turnover and absenteeism?
- It is a regional base for skilled technical staff and managers?
- Consider the actual working environment. What's most conducive to establishing a stable and productive workforce?
- Consider how quickly the Shelter Provider can help manage the transition and initiate operations in Mexico. The sooner the company is up and operating, the sooner it can realize operating savings.
- Consider the portfolio of services provided by the shelter and how those services can be leveraged to reduce costs.
- Check the provider's references – current and past clients, and validate why past clients left the shelter.
Finally, when interviewing potential Shelter Providers, it is absolutely critical that the company asks providers to demonstrate their ability to reduce the company's total per-unit cost. Shelter operators should be able to demonstrate through metrics how they are accomplishing economies of scale. They should provide detailed, current and relevant performance information on their ability to meet the goals of their established clients. And lastly, the operator's data and analysis should be transparent, and their answers clear and to the point.
Today's economy requires businesses to be flexible and agile enough to meet their clients' needs immediately. The Shelter Provider should provide the easiest, most comprehensive transition to get a new operation up and running in the least amount of time possible. They should support the company in increasing its profitability and global opportunities. And they should provide a top-notch team of experts and support staff to help handle the complexities of the business.
In other words, in choosing a Shelter Provider, a company chooses a partner who'll be fundamental in taking it to new levels. So the decision must be made wisely