25 Jan 2020

Supply Chain Optimization: Global Expansion (Mexico)

Background

  • EWA was engaged to develop and implement a Mexican supply chain footprint strategy
    • (identify and qualify local suppliers, evaluate options for assembly operations, identify 3rd party logistics providers, negotiate tax incentives, hire local senior management and evaluate existing DCs)

Approach

Step 1: Define Project Objectives and Requirements
  • Align on opportunities, volume requirements, cost targets
Step 2: Deploy Formal Process & Develop Core Elements for Analysis
  • Identify Products to be outsourced – one product was 48% supplied from China to US
  • 80% of component spend can be supplied from Mexico
  • Labor & Logistics savings favored Product Assembly in Mexico – faster than In-House
Step 3: ID Potential Suppliers and Obtain Analytical Data
  • Identified component suppliers within Mexico
  • Interviews and factory visits to develop supplier “short list”
  • Suppliers provided detailed proposals with pricing, QC control plans, price breaks for increased volumes, samples for performance testing
  • Same process for identifying & qualifying Assembly and Packaging contractors
Step 4: Hands-On Implementation
  • Negotiations conducted with suppliers to finalize
    • Cost, payment terms, projected productivity improvements, forecasting lead times
    • Sharing of productivity/volume benefits, Inventory stocking requirements
  • Negotiations conducted with contractors to finalize cost and value-added services:
    • Provide incoming QA inspection and manage supplier returns
    • Monitor and expedite deliveries from suppliers
    • Assemble and Package product & shipment to customers or distribution centers

Results (Outsourced Product Line)

  • Cost Reduction
    • Reduced inventory vs China ($21MM cash) and shorter lead times, better cash flow
    • Cost reduced 5% ($6MM) vs sourcing from USA, with potential for additional reductions
    • Eliminated tariff impact
  • Other Benefits
    • Quick set-up
    • Low cost to implement
    • Good access to suppliers for USA-based QA and technical staff
    • Good quality outsourced assembly and packaging
    • Elimination of 2 DC’s from proximity to Western USA customers
    • Stable trade environment
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