In the dynamic and interconnected world of modern business, near-shoring has emerged as a strategic option for companies seeking to optimize their supply chains against global geopolitical risk. At TSOR Group, our founders have had the privilege of working with industry leaders such as Toyota, Volkswagen, and Samsung as they implemented near-shore supply chain strategies. Mexico, with its favorable trade agreements like NAFTA and its geographical proximity to the United States, has become a compelling destination for near-shoring operations. In this blog post, we will delve into the advantages of near-shoring in Mexico and explore the key considerations that US companies must take into account to harness this strategic opportunity.
Introduction: Toyota & Volkswagen in Mexico
Toyota and Volkswagen faced a crucial decision of whether to manufacture in their home countries (Japan and Germany), manufacture in the market country (the US), or opt for near-shoring by establishing production facilities in Mexico. In both cases, Toyota and Volkswagen chose the near-shoring option in Mexico, demonstrating the strategic significance and effectiveness of this approach.
Toyota operates a plant on the US border between Tijuana and Tecate, dedicated to producing the Toyota Tacoma for the US market. The facility has a dedicated shuttle trucking service that brings all the new Tacomas from the plant to a receiving facility in San Diego. From there, US-required labeling and final quality checks are conducted before loading the vehicles onto railcars for shipping throughout the United States. This approach offers several distinct advantages:
- Seamless Integration with US Operations: The plant’s proximity to the US allows for a more seamless integration of the facility with US operations. This means plant visits, vendor meetings, and process improvement coordination can be more easily managed.
- Secure Transportation: The plant utilizes a secure toll road for the shuttle trucks, reducing the risk of pilferage and theft during transportation.
- Smooth ” Heijunka” Flow: The plant’s control over the cross-border movement enables the maintenance of a smooth ” heijunka” flow, ensuring consistent production levels and minimizing disruptions or batching in transport.
However, the plant also faces certain disadvantages related to outbound optionality. It is not directly served by a rail carrier, which means all Tacomas must pass through the San Diego gateway before national distribution. Additionally, the plant lacks a simple means to ship vehicles out via vessels, limiting the transportation options available.
The Volkswagen plant is located in Puebla, Central Mexico, southeast of Mexico City. It produces Jetta sedans and Q3 SUVs for the US market. The vehicles are loaded onto railcars and shipped to the US, crossing the border in Texas. From there, the railcars are interchanged to the US rail carrier from the Mexican rail line and routed to a regional distribution hub for final processing and quality assurance.
While rail transportation offers an environmentally friendly means of transport, it also poses challenges in terms of security. Rail supply chains are difficult to secure, and railcars are often subject to pilferage and vandalism during transit. Additionally, the facility’s landlocked location limits the optionality to ship vehicles to the United States via ships. In comparison to the Toyota plant, the greater distance between the Volkswagen plant and the US market makes collaboration less simple and ready to achieve. However, leveraging rail transportation allows for optionality in delivery to regional distribution hubs in the US. In general, both Toyota and Volkswagen demonstrate the three key advantages of near-shore manufacturing.
Four Advantages of Near-Shoring for your Organization:
- Proximity and Cultural Alignment: One of the primary advantages of near-shoring to Mexico is its close proximity to the US, which offers significant benefits for businesses. The shorter supply chains result in reduced transportation costs and faster response times, allowing companies to operate more efficiently. The geographical proximity also enables easier coordination and collaboration between the US and Mexico, fostering effective communication and the establishment of strong business relationships. Additionally, the cultural alignment between the two countries enhances compatibility in work practices and business norms, further facilitating seamless collaboration and a shared understanding of goals and expectations. Overall, the proximity and cultural alignment between the US and Mexico provide a solid foundation for successful near-shoring operations.