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How U.S. Manufacturers Save on Logistics South of the Border

July 1, 2013
American OEMs operating in Mexico are saving money and improving efficiency by sourcing from U.S. suppliers located south of the border.

Even after considerable NAFTA-related growth, the capacity of transportation and ports of entry into Mexico has lagged behind demand. Other factors, including counter-terrorism measures at the border and extended waiting times at customs, have contributed to congestion at ports of entry, resulting in unpredictable delays and higher costs in shipping materials from the U.S. to south of the border.

This situation impacts the businesses of many American and international OEMs who need reliable access to receive ancillary items that support their manufacturing processes, such as components and integral assemblies as well as packaging and material handling containers that are necessary to producing finished goods. But when logistical nightmares occur, added lead times and resulting shortages cause OEMs to temporarily disrupt manufacturing operations or shipping while they await the arrival of the needed materials.

In some cases, American OEMs are experiencing difficulties getting thermoformed components and containers to their assembly facilities in Mexico. Such thermoformed items include plastic panels and covers, assemblies, custom material handling trays, as well as standard items such as plastic pallets and totes that are commonly used in production and distribution processes.

Some suppliers are opening facilities south of the border to capitalize on the need of international OEMs looking for quality suppliers.

JIT is Easier When Local

“One of the most important benefits we get from working with a U.S. supplier who has a local operation is that, because they are very close to our plant, we get deliveries very quickly,” says Francisco Davila, Logistics Project Engineer at Magna Powertrain, a division of Magna International (Aurora, Ontario, Canada). “Not only do we have Just-In-Time service, but we also avoid all of the expenses of transportation from other areas such as the U.S.”

Magna Powertrain is a supplier for the global automotive industry with services including powertrain design, development, testing and manufacturing. At Davila’s plant, located in Ramos Arizpe, in the greater Saltillo area in the state of Coahuila (Northern Mexico), the company produces transfer cases for truck applications.

The transfer cases are machined components that are conveyed from the machine shop to the assembly line in custom, reusable trays produced by the local Fabri-Form plant in Ramos Arizpe.

Fabri-Form is a New Concord, Ohio-based company that designs, engineers and produces thermoformed plastic products, including reusable packaging, and components used in commercial vehicle, automotive, recreational, agricultural, and industrial applications.

In 2012 the company opened its Ramos Arizpe facility to support a growing customer base in Northern Mexico. The modern 50,000 square foot facility expands the company’s capacity to produce component parts for the heavy truck industry as well as custom transport packaging for various industries including automotive and industrial.

Navigating Navistar’s Needs

Fabri-Form can coordinate manufacturing, warehousing and assembly between its U.S. facilities and those in Mexico. For example, the company manufactures bunks used in truck “sleeper” units, (the compartments used for sleeping or rest behind the cabs on big trucks), for Navistar at its Indiana plant.  Fabri-Form then ships the bunks in component form to the Ramos Arizpe facility where they are warehoused before final assembly.

“That helped us with logistics savings because all of the shipments were coming out of a Fabri-Form plant that was much closer to the truck assembly plant in Monterrey, Mexico,” explains Brad Jacobs, a former Sourcing Specialist at Navistar.

Jacobs adds that this supplier approached Navistar with the cost reduction concept.

“That is something that often appeals to a customer, especially if they prefer to use your products,” he says. “In this case they would send four to five shipments of bunk materials from Indiana down to the Mexico plant. They would warehouse the materials there and then assemble them as required to meet our needs.”

In addition to the logistics savings, by locating a plant in Mexico, this supplier is able to pass along some labor savings. Also, the company is a member of IMMEX, the program that provides the ability to defer taxes on goods that are temporarily imported into Mexico and to consolidate import declarations. This allows exporting manufacturers to avoid 17 percent in VAT (value-added taxes).

The same advantages applied to Daimler’s heavy-duty truck plant in Saltillo, Mexico.

“This is the plant where the big class-8 Freightliner-Daimler sleeper trucks are made, running in high volume and very quick takt (cycle) times,” says D’Arcy North, former Materials Manager at Daimler Trucks of North America (DTNA) in Saltillo. “To help reduce inventory and freight costs, DTNA sourced its sleeper bunks from Fabri-Form’s nearby Ramos Arizpe plant.”

In addition to bunks, this supplier produces large panels and assembled cabinets, and has the capacity to produce additional components based on customer needs.

“Some of the biggest cost factors are normally inventory carrying costs and inbound and outbound logistics costs, mainly freight,” North explains. “Freightliner is the largest of the custom truck manufacturers. And as such, we needed to be flexible. Our schedule frequently changed, and there were always changes in our customers’ requirements. So, with our supplier right down the road, we were able to achieve the necessary flexibility without carrying a lot of inventory or worrying about shipments that were somewhere en route from the U.S.”

Reusability Savings

GKN is a London-based multinational automotive and aerospace company with manufacturing facilities at many locations around the globe, including a unit of its Driveline group in Celaya, Guanajuato, Mexico.

“We produce half-shafts for many major automotive OEMs,” states Marco Coello, Supply Chain Leader at GKN Mexico. A half-shaft is rotating shaft, located at the front or rear of the vehicle, that transfers power from the transaxle/differential unit to the hub and drive wheels. It allows the drive axle to swivel at various angles.

“We supply many automakers, including Ford, Nissan, Volkswagen, Chrysler, Toyota, Honda, and GM, so there are many different half-shaft shapes and sizes, depending on the OEM design,” Coello explains.

Each half-shaft is individually placed in a customized, thermoformed plastic protective tray before it is shipped to various OEM customers, the automakers. To produce those trays, GKN Driveline turned to Fabri-Form.

“We send them an original design and half-shaft sample for the containers produced for each of the OEM models,” Coello says. “Then Fabri-Form creates the reusable trays for shipping to the customer, who returns the trays to us after they are received and unloaded.”

Coello states that having a local supplier makes it much easier for his company to ship the trays to various OEM customers throughout Mexico.

“They reduce the lead time requirement, which in turn reduces the turnaround time for both production and delivery,” he says.