OEM’s in Mexico make efforts to recruit domestic suppliers
By MEXICONOW Staff Report
Even though the maquiladora program has been active in Mexico for more than 50 years, Mexican suppliers have little, direct participation in the industry.
The lack of certifications, weak finances, low production capacity, and limited access to soft -loans are the most common disadvantages international maquiladoras found in the Mexican suppliers to be part of their supply chain.
For more than a decade, the Government as well as the industrial chambers in Mexico have implemented programs to link maquiladoras with local suppliers to fulfill their needs for parts, maintenance and contract work, but the results have not reached the goals.
In recent years, the development banks have joined this strategy as well as entrepreneurs and some Mexican suppliers have been able to join the maquiladoras’ supply chain, but the 15% goal has not been reached still.
A big market for Mexican suppliers
The maquiladoras in Mexico buy US$231.6 billion annually in raw material and services, but less than 25% of this figure is sourced in the country and the rest is imported. But most of the purchasing is made to foreign companies established in Mexico and Mexican capital suppliers only account for 3 to 5% of the total purchases, according to the National Institute of Statistics, Geography and Informatics (INEGI) data.
A recent analysis showed the lack of financial stability, the limited access to credit, and the lack of certifications are some of the most common disadvantages the Mexican suppliers face to be included in the supply chain of these big corporations.
The document analyses 7,318 Mexican suppliers active in the country and found out that only 1% of them have a very high potential to be integrated into the maquiladora´s supply chain. An additional 16% was classified as “high potential” supplier.
The analysis revealed the average grade for the supply chain in Mexico is 82 in a 100 point scale, being the northern region the most competitive in the country.
This recent analysis co-sponsored by ProMexico shows maquiladoras in Mexico are not only looking for high tech components, but also packaging and raw material; therefore, the opportunities for Mexican supplier are broad.
“Some companies are even looking for wood pallets and they have a hard time to locate a competitive company to fulfil this need,” said Carlos Yates, state director of ProMexico in Chihuahua. “Mexican suppliers are wasting a huge opportunity to work with the manufacturers doing business in Mexico.”
He explained ProMexico has the task to assist Mexican suppliers to be part of the maquiladoras supply chain; therefore, they try to link them with potential clients, and help them to get access to training for their workforce. Also, ProMexico is hosting regional summits to link potential suppliers and maquiladoras.
The presidents of the industrial chambers in the country said that Mexican companies must fulfill at least the maintenance and repair needs for maquiladoras. This activity alone represents US$1.3 billion annual spend by the maquiladoras in Mexico.
A strong supply chain in manufacturing reduces cost, increases competitiveness and improves quality, but for many years, maquiladoras have been looking for suppliers in Mexico and many of them do not qualify to be part of their operations.
But still maquiladoras remain positive and they have developed departments to seek and to evaluate potential suppliers in Mexico in an aim to increase the national content of their products.
John Constantine, Senior Director Supplier Quality and Development at Electrolux said the company is developing a local, strong supply chain because it is easier to work with a supplier that is close to the consumers; the company can work with the supplier to improve quality and the cost is lower when the supplier is in Mexico.
“Our customers at the end expect the best class quality in the world; it is one of our objectives. Our suppliers are a critical part of it,” Constantine expressed. “If we start with the right components, it would allow us to have the best product at the end.”
According to the company´s data, only 21% of the buying requirements of Electrolux in North America comes from Mexico. This figure only represents US$480 million, while suppliers in the U.S. account for US$1.19 billion a year.
Nowadays, Electrolux is looking for suppliers on stamping and metal form as a top priority. The company has great expectations for its manufacturing sites in Ciudad Juarez.
Even though the company is willing to buy most of the raw material in Mexico, it does not mean the selection process is easy. On the contrary, Electrolux has a very comprehensive selection process for the supply chain.
Another company looking for Mexican suppliers is Flex. Diego Nuñez, Director of Business Development at Flex, said companies like Flex have a wide range of purchasing requirements seeking to meet in Mexico as soon as possible.
“We even have a 12-member team to locate suppliers in Mexico and we provide feedback to our existing suppliers using a scorecard system to improve quality of their services and products,” Nuñez stated.
Some of the commodities Flex is looking for in Mexico include: labels, fabricated metals and plastics, packaging, hardware, manuals and brochures, cable and harnesses, and die cut. Also, new production lines need suppliers for
He enumerated some of the focus commodities the company has, such as sole and midsole for sport specialized shoes, glass, weldments, conductive fabrics, pressing and sintered materials, metallic conductive process, biodegradable packaging, sport fabrics, and nanotech material.
The automotive sector in Mexico has the biggest expenditure in raw material. According to INEGI, this industry spends at least US$74.4 billion per year in raw material, but most of the money goes overseas or to international firms based in Mexico.
“Our vision is to source 100% of parts and services in the region,” said Oscar Gamon, Director of Indirect purchasing in the Americas at Delphi. “We have made a lot of progress in the last few years, but still we need suppliers that provide world class quality, cost and delivery.”
According to the company´s data, Delphi purchases US$1.7 billion in North America, but Mexican suppliers only account for US$612 million. The rest is being bought in the U.S.
Furthermore, Tier 1 suppliers in Mexico account 27% of the purchase power of the company, but still most of these suppliers are foreign companies with operations in Mexico.
“The problem with the supply chain in Mexico comes from the Tier 2 and below, because Tier 1s establish operations in the country by themselves and they already have a contract with big auto manufacturers,” said Eduardo Solis, president of the Mexican Association of the Automotive Industry (AMIA).
He explained Mexican companies must innovate to be part of the supply chain and be competitive in the global market.
At least 450 of the 500 biggest Tier 1 suppliers have operations in Mexico and they import vast quantities of parts from foreign countries.
The purchase requirements for these Tier 1 include copper, aluminum, and allow cable and wire, tires, seats and parts, harnesses, steering column parts, and disc brake mechanisms for up to US$39 billion yearly. But most of these components are not being bought from Mexican suppliers.
A comprehensive strategy
Besides the maquiladoras creating a task force to develop their supply chain in Mexico, the Mexican government is also generating programs to create and to integrate Mexican companies to supply the raw material, packaging, and services companies have in Mexico, especially in the automotive, electronic, medical, and aeronautical fields.
Rogelio Garza, undersecretary for Industry and Commerce at the Secretariat of Economy, said the 37 active clusters in Mexico have been helpful to strengthen the supply chain and to link companies.
“If Mexico wants to increase the value added, clusters will be crucial to link companies and help each other to find suppliers,” he expressed.
The secretariat has training and financing programs to help suppliers to be competitive, especially in the financial, human resources, training, and certification fields.
The development of the supply chain has been included in the National Development Plan 2013 -2018 as a strategy to create wealth and to improve the economy and competitiveness in Mexico.
Also, the Secretariat of Economy in Mexico is trying to link suppliers and maquiladoras with a national registry and promoting summits to address the demands of the companies and the capabilities the supply chain in Mexico has. Some maquiladoras in Mexico have been able to locate suppliers with these strategies.
Garza said the public policy is changing to promote growth in Mexico and to create Mexican supplier that can compete in the global market.
Moreover, ProMexico and Inadem have also developed programs to strengthen and link suppliers with big corporations doing business in Mexico.
Furthermore, Mexican industrial associations have joined this strategy and in the last quarter of 2015 announced a program to develop 200 world-class Mexican suppliers in 3 years.
Manuel Herrera Vega, president of the Mexican Confederation of Industrial Chambers (Concamin), said this association along with the Maquiladora Association (Index) created the program Concadena.
He informed last year the associations hosted a B2B session and Mexican suppliers were able to sign contracts with the maquiladora worth US$1 billion. The goal for this year is to sign up to US$5 billion in contracts with 80 maquiladoras in Mexico.
Development banks as part of the strategy
In the last 5 years, the development banks in Mexico have tried to reach Mexican suppliers to allow them access to credit; to be their guarantee with the private banks or give them access to factoring services. This strategy has worked for a few suppliers.
Most of the credit is used to buy new technology and machinery as well as to finance the company´s operation and finances for the medium term.
“We need supplier to get access to credit, the interest rate, most of the times, are high and many suppliers cannot afford it,” said Julio Chiu, president and CEO of SEISA, a medical products manufacturer.
Jacques Rogozinki, general director of Nafinsa – a development bank in Mexico – said 40% of the services provided by the bank are guarantees to get access to credit with some commercial banks with low interest rates.
He expressed factoring services also have a growing demand because companies can sign big volume contracts without affecting their finances. Factoring allows suppliers to be paid almost immediately by their bank instead of waiting up to 90 days, like many maquiladora contracts establish.
“These programs have helped Mexican companies have strong finances and to buy equipment to fulfill the need of the big manufacturers doing business in Mexico,” Rogozinki stated.
A recent report published by Banco de Mexico (Banxico) – Mexico´s central bank – in 4Q-2015 industrial Mexican suppliers borrowed US$30 million from the development banks operating in Mexico. This figure doubled from last year´s.
On the other hand, the private sector registered a US$22.9 million in credit for this economic sector. Half of these credits were for Mexican suppliers established in Mexico City, the State of Mexico, Jalisco and Nuevo Leon.