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February, 2017
variables that include labor, material, transport, and regulatory costs. Overall, the supply chain must balance a slew of considerations — prod- uct lifecycle, business flexibility, insourcing and outsourcing, and the cost, risk, speed, and flex- ibility of a particular manufacturing location. North American OEMs have many options
when considering the best electronics supply chain. As product lifecycles shrink, the need for a highly-responsive supply chain increases. There is no single answer that fits every
scenario, but some trends have certainly shift- ed the balance for those making moderate-to- high-complexity products sold in the North American industrial and medical market sec- tors. Ten years ago, more frequently than not, the de-facto answer for most OEMs was that they needed to build electronic products in Asia to be globally competitive. Since then China in particular has experienced significant labor cost and wage inflation in the manufacturing sector and continues an upwards wage trajectory faster than most competing markets. Nearshore manufacturing options today offer
a practical alternative for controlling costs and minimizing supply chain risks for OEMs. The goal should be the lowest TLC that achieves the re- quired business flexibility.
Evaluating Supply Chain Options To determine the best nearshore market for
an individual company’s needs, it is important to run an optimization model that determines the lowest TLC. This includes the cost of the product, which comprises labor, materials and overhead, plus all the shipping, freight, duties, and taxes.
Navigating the Nearshore Movement W
By Steve Heinzen, Vice President of Strategy and Marketing, NEO Tech
hen OEMs design a supply chain, the fac- tor that speaks the loudest is total landed cost (TLC). Wrapped up in this figure are
Companies also need to take into account that fuel prices and security concerns can drive up logistics costs. As part of the optimization model, OEMs should consider not only the quoted TLC, but the likely impact of schedule variation and premium
India. Employee quality of life is better when they can have conference calls with nearshore manufac- turing partners during regular work hours, as op- posed to late into the evening, often at home, when the Asia supply base starts work. Trips to the factories, especially in Mexico
border locations can be made day trips — not week long trips when traveling to Asia. Em- ployees can spend more productive time doing value-added work and use nights and week- ends to achieve a healthier work/life balance. Mexican nearshore solutions provide ac-
cess to low-cost labor and border-based manu- facturing facilities that offer simplicity in logis- tics, proximity, and less complex communica- tion, while cultural closeness to the U.S. mar- ket makes doing business easier. NEO Tech operates 14 manufacturing lo-
NEO Tech’s manufacturing facility in Juarez, Mexico.
freight used to avoid inevitable supply disruptions. As the labor costs in China rise relative to
Mexico, the landed cost in the U.S. market for many products makes Mexico a better value. The proximity of Mexico to the U.S. and Canada is es- pecially advantageous in reducing logistics cost and transit times.
Consider the “Soft Costs” Nearshoring offers companies many advan-
tages. One benefit is the comparative ease of doing business in the same or near the same time zone, with a supply partner that can conduct business in English, and with many cultural similarities, as opposed to alternatives such as China, Malaysia or
cations across the U.S., Mexico and China. The company’s Otay Mesa site in Tijuana, Mexico, and its Agave site in Juarez deliver nearshore solutions in close proximity to U.S. logistics hubs — both only a few miles from the U.S. border. The company’s engineering, supply
chain and operations specialists work closely with current and prospective customers to evaluate their project needs and create solutions that best align with each of its customer’s objectives. To
There is no one-size-fits-all supply chain solution, but industry trends
are leading OEMs to consider closer and more responsive manufacturing locations.
make nearshoring successful, companies must choose the right partner, one who has experience
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