Outsourced Logistics Com Images Archive Maquiladoras
Outsourced Logistics Com Images Archive Maquiladoras
Outsourced Logistics Com Images Archive Maquiladoras
Outsourced Logistics Com Images Archive Maquiladoras
Outsourced Logistics Com Images Archive Maquiladoras

Maquiladoras are Still a Supply Chain Option

Jan. 16, 2008
Companies that produce and move product should take another look at Its not just about China anymore. By Mary Aichlmayr senior editor, Material Handling
Companies that produce and move product should take another look at “offshoring.” It’s not just about China anymore.

By Mary Aichlmayr senior editor, Material Handling Management

When we think of offshore production, China almost automatically comes to mind. It’s become natural to associate labor-intensive production and material handling tasks with China and other low-cost countries in Asia. But, recent consumer product recalls and product quality issues have raised concerns about China—and lowcost manufacturing in general.

An active near-shore sourcing option is vying for attention and new growth opportunities, and it doesn't require an ocean journey to access its skilled and relatively low-cost labor pool.

The border community that encompasses El Paso, Texas, and Juarez, Mexico, is one of the largest manufacturing centers in North America, according to Bob Cook, president of the El Paso Regional Economic Development Corp. The area employs more than 260,000 manufacturing workers in the primary industries of automotive, military and healthcare.

The city of El Paso rests right at the intersection of New Mexico, Texas, and the Mexican state of Chihuahua. Cook says there are 10 border crossings in Chihuahua and five ports of entry, along with connections to interstate highway and rail systems.

“As of March 2006, more than 47,000 vehicles cross the border every day,” says Cook. Nearly 10,000 of those vehicles carry employees traveling from Mexico to the US, while more than 11,000 vehicles per day carry students.

And, in the near future, the population—and infrastructure— of the border community will explode, as the effects of the 2005 Department of Defense (DoD) Base Realignment and Closure (BRAC) plan take hold. Under BRAC, about 70,000 American troops will relocate from all over the world to Fort Bliss, Texas, and Fort Riley, Kansas.

By 2010, Fort Bliss will see a net increase of more than 20,000 soldiers and as many as 30,000 family members. Located near El Paso, Fort Bliss is the largest DoD-controlled air and ground space in the US and only slightly smaller than the state of Connecticut, says Cook. He expects BRAC to have a $20.9 billion impact on the region.

Offshore Redefined

Production and assembly operations are thriving just across the border in Juarez, thanks to Mexico’s well established maquila industry. The city of Juarez, in the state of Chihuahua, offers companies the benefits of “offshoring” without the cost and complexity of shipping overseas.

The maquila industry got its start when the Mexican government established its Border Industrialization Program in the mid- 1960s as a way to alleviate high unemployment in border regions and attract foreign investment.

Under the maquila program, US companies can import equipment, machinery, raw materials, and other production components to Mexico, duty free, and leverage the country’s lower labor costs to produce, assemble, package, process or sort just about any product.

In 2006, according to REDCo, $17.1 billion in imported supplies entered Juarez, destined for more than 340 maquiladoras— foreign-owned factories located just across the border that assemble products for export to the US.

And 50% of foreign investment in Juarez is related to manufacturing, adds Desarrollo Económico de Ciudad Juárez, A. C., the economic development corporation (EDC) of Juarez.

Taking on China

It’s easy to understand why US companies decide to locate assembly and production functions in maquiladoras. While average labor costs in the US range from $18 to $24 an hour, the average wage for a maquila worker is only $2.50 per hour, according to the Juarez EDC.

China, however, is still a fierce competitor. The average hourly wage in that country is only $1.00, REDCo’s Cook states.

Still, executives from El Paso/Juarez EDCs and Juarez manufacturing plants claim the region has a leg up on China.

“China is cheaper than Mexico,” he agrees, “but Mexico is closer to the US, and quality has been an issue with China-made goods,” says Enrique Perez, vice president of border operations at The Toro Co. and a 30-year veteran of the maquila industry.

Toro operates two plants in Juarez and one in El Paso and employs a total of 2,500 employees in the three facilities. The company makes landscape and garden sprinklers as well as electronic controls for golf courses, landscaping companies, and homeowners. While the most complex operations—like injection molding— take place in El Paso, highly labor-intensive processes—like assembly—occur in Juarez.

“China is very threatening to us, and it forces us to be more competitive,” Perez admits. However, Perez explains that 85% of supervisors in the Toro border plants have engineering degrees, and processes are continually evolving to incorporate more advanced technology to stay competitive. Each of the facilities has implemented lean manufacturing initiatives and uses work cells instead of assembly lines for added flexibility in the production process.

North and South

Through trial and error, companies have learned over the years which operations are best located above the border and which are best below. While there are exceptions, most distribution tends to be located in the US, while manufacturing and assembly tends to happen in Mexico. Raw materials are shipped to Mexico, where they are consolidated and then used for production and product assembly. Then assembled products are quickly and cost effectively exported to US distributors.

Elextrolux Corp. is a good example of how this works. The company produces electric and gas cooking stoves, refrigerators, dishwashers, washers, and dryers under the familiar brand names White Westinghouse and Frigidaire.

In 2005, Electrolux opened a new, $100 million, 1.5 million-square-foot manufacturing plant in Juarez. One year later, Electrolux added another 800,000 square feet to the facility. There, its employees produce parts and sub-assemblies and assemble product with more than 3,400 employees working two shifts.

Just last year, Electrolux broke ground on a new plant in Juarez that will start producing front-load washers and dryers in mid-2008.

Refrigerator production begins with raw steel arriving in rolls and ends with a finished refrigerator, ready to be packaged and shipped by truck to a US distribution center. Forming the pre-painted steel is a fully automated process, although it does require technician oversight.

Final assembly is the most labor-intensive part of the operation. Steel cabinets are fed via motorized conveyors to assembly lines where plastic walls are installed in the cabinets.

“Traditionally, this has been a very manual process,” says Georgina Gonzales, communications supervisor at Electrolux, “but it’s becoming more complex each year.”

One unit is produced every 22 seconds, and 100 to 150 trucks per day pick up the finished goods and transport the majority of the product to the US.

Universal Challenges

Labor costs may be lower across the border, but plant and warehouse supervisors in Juarez still struggle with many of the same workforce challenges being confronted by their counterparts north of the Rio Grande.

For example, attracting and retaining skilled workers is a major concern for companies that locate their plants in Juarez. To keep turnover rates low and encourage productivity, Electrolux provides transportation to and from work as well as two meals a day for its Juarez personnel.

Bombardier Recreational Products Inc. also offers its Juarez workers on-the-job training and even on-site laundry services.

Workers learn manual welding techniques on the job, and as their skills advance, BRP management offers opportunities to advance to more complex tasks, which helps keep people motivated and productive, says Amelie Therrir, BRP’s human resources manager.

In October 2007, BRP opened a new, 410,000-square-foot, all-terrain vehicle (ATV) manufacturing and assembly plant in Juarez. There, 650 employees assemble the Can-Am ATV Outlander and Renegade lines, as well as the Rotax engines that power them.

More than 47,000 vehicles cross the border from Juarez, Mexico, to El Paso, Texas every day.

The Juarez plant is the first BRP facility to produce both engines and vehicle assemblies; it is also the first plant outside of Austria to produce Rotax engines. By 2009, BRP expects the Juarez plant to produce 85% of the world’s supply of Can- Am ATVs.

And, this is no accident. According to REDCo, Juarez offers a labor pool of 460,000-plus workers. BRP, like many other manufacturers, has found a way to tap into it.

“Offshoring”—even when it’s not technically off shore—is one of many ways manufacturers and distributors are controlling labor and logistics costs in an increasingly global world.