Strategic Sourceror 2011 | Mexico is the best sourcing destination for medical devices
A recently emerged trend has companies contracting with suppliers in Mexico and other Latin American countries over low-cost Asian countries. While the reasons are numerous, many companies assert Mexico’s highly-educated workforce, infrastructure upgrades and ability to avoid import tariffs in certain countries have driven the shift.
The Entrada Group, a leading manufacturing shelter operator, published a whitepaper this week that illustrates the benefits companies can secure by sourcing in Mexico as opposed to other countries; specifically, the paper focuses on why medical supplies and devices destined for North American markets should be manufactured in the Latin American country.
Produced with the independent consultant John Cecilia, formerly of the Kimberly Clark Corporation, the whitepaper states that medical device companies have shifted their manufacturing to low-cost countries because of a compendium of factors, including rising health care costs and the pressure put on them to produce goods at increasingly competitive prices.
If a medical device company plans to sell its products in North American markets, but endeavors to keep costs down, Mexico presents a perfect compromise, the whitepaper concludes. First, a medical device company must decide what the total deliverable costs of sourcing the product in another country will be; while many Asian countries undoubtedly provide low-cost labor, there are often bigger costs incurred in transporting those goods to North American markets.
According to Cecilia, a manufacturer must ask: “What is going to be my total cost structure to make the product and deliver to my target market?” Though companies can sometimes have a “tendency to look at a discrete aspect like labor costs, it’s not the ‘be all, end all’ of your costs,” Cecilia affirms.
The whitepaper also recommends considering sustainability when making such decisions. For example, transporting medical devices into the U.S. requires certain government approvals from the Federal Drug Administration; as a result, products made in certain countries could face a more difficult time passing through the border than those manufactured in Mexico.
Moreover, companies should consider the reliability of the supply chain when choosing a supplier in a given country. When a product that is intended for North America is made in China, for example, there is a greater potential for supply chain interruptions than if it were sourced in Mexico.
Lastly, a “final critical factor is the business environment,” said Entrada Group business development vice president Doug Donahue. “Within our whitepaper, we felt it important to assess the business climate in Mexico vis-à-vis other countries,” he said. “With Mexico’s introduction of the Maquiladora business model in the 1960s, and the enactment of significant national trade agreements such as the North American Free Trade Agreement (NAFTA), Mexico continues to be a prime supplier of products for sale to the U.S. and other global consumers.”
Source: Strategic Sourceror