Minimizing Mexican Manufacturing Supply Chain Risk

Mexican manufacturing supply chain management is a fundamentally important task for all companies that want to avoid disruptions in their supply chain and to succeed. To accomplish an effective management of this area of a business, it is necessary to identify all the risks to its smooth functioning. 

Below we examine and review the 10 most commonly detected Mexico supply chain risks:

1. Quality

Mexican manufacturing supply chains that have many actors that are active in them are decidedly more complex.  Therefore, over time, it may be harder to maintain the quality standards that are demanded by the global marketplace to be optimally competitive.  Suppliers also have their own providers that can pose an additional factor of uncertainty, as well.   

In order to keep things running smoothly it is advisable to incorporate the following quality management practices into the operation of a company’s Mexican manufacturing supply chain:

• Visibility – Identify issues early before they become costly quality incidents.
  
  
• Traceability – Understand the root cause and source of quality issues in the Mexican manufacturing supply chain.
  
  
• Accountability – Ensure that supply chain partners understand issues and resolution requirements in a detailed and a timely manner.
  
  
• Profitability – Mitigate quality related financial risk and improve Mexican manufacturing supply chain efficiency.

2. Inventory

Anyone working in logistics can be overwhelmed by the task of effectively managing inventories.  This is an art, which, once again, becomes exponentially more complex the larger the reach of the supply chain.   As it gets longer, the amount of inventory that a company has to manage increases exponentially.  Because of this consideration, a supply chain that is limited to the North American free trade region is preferable to one that extends globally.

In order to have an effective Mexican manufacturing supply chain, it is a must to know how much inventory is located at each location that a company has at all times.  Although many manufacturers in Mexico begin with a single warehouse, using a multi-warehouse strategy may be appropriate for some operations.  When a company targets a growing global audience (or even just a large region like the USMCA trading bloc), shipping items from a single warehouse, in some instances, may cause delivery delays for customers.   

Among the warehouse challenges that can be found in a Mexican manufacturing supply chain environment are the following:

• Maintaining stock counts: When a company operates multiple warehouses ensuring that all necessary products remain stocked can be a challenge. Out-of-stock items can lead to supply chain inefficiencies and lost revenues.
  
  
• Cross-warehouse communications: Because warehouses in a Mexican manufacturing environment can be some distance apart, it is impossible to have the employees that run them all in one office. A lack of face-to-face interactions sometimes cause bottlenecks and errors and can hinder the streamlining and improvement of processes.
  
  
• Mixing up files for different warehouses: When companies don’t maintain separate file systems for each warehouse (like inflow, outflow and invoices), it is easy for orders and shipments to get mixed up between facilities.  This is especially true when a centralized filing system is in use.
  
  
• Space Utilization/Warehouse Layout: It is not about how much space a Mexican manufacturing warehouse provides; it’s about optimizing the use of existing space to avoid unnecessary labor and cost.
  
  
• Redundant Processes: When managing a Mexican manufacturing supply chain, the use of barcode technology can reduce or eliminate the problem of products and their associated documentation passing through multiple hands.  This results in greater efficiency and, in turn, cost reduction.

3. Natural Disasters

Difficulties that fall under the category of natural disasters such as earthquakes or pandemics such as the current coronavirus situation can be especially detrimental to global supply chains. 

Because the events such as these can have highly pejorative consequences, it is of significant strategic value and a good practice to do business close to home.  That is why having a Mexican manufacturing supply chain can be an advantage for companies that are seeking to enhance their operations’ overall security and operational integrity. 

Companies should, however, consider ways to mitigate the negative effects of natural disasters on the conduct of their business.  Preventative measures that can be taken to protect the Mexican manufacturing supply chain include:

• Embracing supply chain transparency: Achieving supply chain transparency supports making the most appropriate risk management decisions and assessments.
  
  
• Strategically taking on extra resources: When a natural disaster threatens a Mexico supply chain, companies may need to take on extra resources to lessen its impact.  Whether transportation networks are threatened by inclement weather or entire locations have been compromised by population quarantines, strategically placing extra resources in differing locales can help to keep firms operational longer and to recover quicker.
  
  
• Using a variety of suppliers: While using a sole provider can be tempting because of the potential cost advantage and possible added efficiency, diversifying a Mexican manufacturing supply chain is another lever that can be used to mitigate risk.
  
  
• Mapping out transportation options: After a disaster, there is often a competition for limited available resources.  Companies are best served by thinking through different transportation options and scenarios before disaster strikes.  Doing so will ensure quicker access to alternative routes, should transportation become an issue.
  
  
• Backing up trade related documents: Digital and physical business documents are susceptible to natural disasters. Losing them can cause significant problems.  Prudent companies should look into options for data backup and third-party document storage to protect their Mexican manufacturing supply chain.

4. Economy

When logistics and supply chains are spread across a number of different nations, it is not a question of whether or not there will be disruptions, but, rather, where they will inevitably take place. 

In other words, the disruption of extended supply chains is a fact of life.  It is, however, important to be aware of the precautions that companies can take to mitigate risk in their Mexican manufacturing supply chain.  Among precautions that can be taken are:

• Prioritize by probability and impact: Covering every scenario possible and prioritize potential risks by the likelihood that they can actually take place and develop mitigating contingency plans.
  
  
• Be transparent with partners: Share information such as increased sales projections and include partners in product design changes.  This helps suppliers have the right product available when needed.
  
  
• Consider trade credit insurance: At times, Mexican manufacturing supply chains can be adversely affected by slow or no-paying customers.  This can negatively impact working capital.  Trade credit insurance can protect the bottom-line, free-up capital and help to secure better financing options from lenders.

5. Losses in transit

The loss of goods during transport is another major concern for companies that have spread out and extended supply chains.  Losing goods during the shipping process can happen as a result of small incidents to accidents involving the vehicle in which goods are transported. 

In extreme cases, with extended supply chains, ocean vessels that are used to move freight may even be hijacked by pirates.  The consequence of events such as these can be economic losses, problems with insurance, and failure to meet shipment deadlines.

In addition to having a short Mexican manufacturing supply chain, rather than one that is long and spread out, it is recommended that the following steps be taken to mitigate the risk of loss of goods in transit:

• Understand the corporate insurance: Take the time and make the effort to learn about shipping insurance by reading relevant literature.
  
  
• Understand the corporate insurance and risk strategy of the company for which you work.
  
  
• Document how each shipment is insured: Are goods in transit covered by carrier liability only or does other insurance exist which protects the shipment?
  
  
• Assess your risk: Understand the value of your shipments.  Track losses and document the amounts that have been recovered.

• Estimate the impact on corporate financials due to losses in the supply chain. Large losses will increase working capital and depress cash flow.

• Partner with an insurance professional who understands supply chain issues in order to choose the right cargo insurance coverage.

6. Delay in New Products

Under any circumstances, the launch of a new product is always a challenge.  Although working through an extended supply chain can be risky, there are things that to ensure that new items are brought to market as scheduled.  Among them are:

• Plan for the Unexpected: New matter how well things seem to be planned out, companies should always expect that something may come up in their Mexican manufacturing supply chains.  Events such as product compliance issues, production delays and quality issues sometimes occur.
  
  
• Use Machine Learning in the Mexican Manufacturing Supply Chain to Prevent Mistakes: Companies should collect and analyze data from every area of their supply chains. Quality input should be gathered from warehouses, sales teams and other departments that make up a part of the supply chain.  With the right data and analytics tools in hand, companies are able to glean crucial insights in order to correct any anticipated issues with their Mexican manufacturing supply chains.

7. Cybersecurity

When managing a Mexico supply chain, cybersecurity measures should be taken and should be updated periodically. A computer attack can disrupt logistics operations, and can modify data, orders, dates and records.  Companies should recognize the growing importance of technology in the management of a supply chain in Mexico.

8. Intellectual Property

It is imperative that a company’s intellectual property be protected.  Doing business close to home in Mexico reduces this supply chain risk.  Mexico has intellectual property protection laws that are similar to those found in the United States.  This is not the case with other low-cost labor developing countries, especially China.  Remember, IP is a very important business asset.

Measures that should be taken to safeguard intellectual property include:

• Registering copyrights, trademarks and patents.
• Registering business, product, or domain names.
• Creating confidentiality, non-disclosure or licensing contracts for employees and partners.
• Implementing security measures by setting up password protection for all computer networks, encrypting data, using virtual private networks (VPNs) and establishing Wi-Fi protected access.

9. Political Instability

Political instability in a country can be detrimental or even disastrous to manufacturing supply chain.  Mexico, however, is a politically stable neighbor of the United States.  The Mexican Revolution (1910-1920) created a democratic state with a bicameral congress, a six-year one term presidency and a judicial branch.  Since this time, Mexico has enjoyed continuous stability in its political system.

10. Customs

The last item that makes entry into this list of Mexican manufacturing supply chain risks is customs.  National customs services in North America have mobilized to improve systems when it comes to knowing the contents of freight carriers’ shipments in an effort to detect suspicious cargos and false content statements (bills of lading).  These measures are being taken to reduce the time and minimize the delays that may adversely affect the Mexican manufacturing supply chain.

Companies that take supply chain risk seriously, need to measure how these and other problems can influence it, as well as to establish plans to mitigate possible disruptions in the logistics process.  It is of supreme importance to remember that risk analysis is the most powerful tool of all those that can be utilized to minimize potential problems.