Executive Briefings

Which Is Better, to Build Supply Chain to Far East or Mexico?

Eight years ago, Kenosha, Wisconsin's Powerbrace Rail Products, which develops and builds intricately engineered components for railroad freight cars, was in expansion mode. If it didn't expand, it would have to consider subcontracting the manufacturing of one of its proprietary devices to another firm, which was not appealing to president Mike Weber.
While the company didn't have a choice to expand, it did have a choice about where. Powerbrace chose to expand outside of the United States because "domestic plant start-ups require meticulous planning, execution, and a lot of cash," he says.
Weber did not like the then-booming option of outsourcing to the Far East, specifically China, especially after 9/11. "China has reduced financial incentives to some of its industries to stimulate its own exports," he says. "Coupled with the weakening dollar and oil's explosive rise, all three factors dampen demand for imports from the region. That gave us cause for pause in deciding to build there."
He briefly toyed with the idea of outsourcing the manufacture of some components but quickly discarded the idea due to the potential problems that many who did choose a Far Eastern manufacturing option have faced.
"It takes a lot of cash to build a supply chain to China and a lot of time," adds Weber. "And with inventory in-transit for six weeks, there's no flexibility to make changes if suddenly needed." His deliberations led him to consider another option--Mexico's maquiladora program.
Source: Outsourcing Journal

Eight years ago, Kenosha, Wisconsin's Powerbrace Rail Products, which develops and builds intricately engineered components for railroad freight cars, was in expansion mode. If it didn't expand, it would have to consider subcontracting the manufacturing of one of its proprietary devices to another firm, which was not appealing to president Mike Weber.
While the company didn't have a choice to expand, it did have a choice about where. Powerbrace chose to expand outside of the United States because "domestic plant start-ups require meticulous planning, execution, and a lot of cash," he says.
Weber did not like the then-booming option of outsourcing to the Far East, specifically China, especially after 9/11. "China has reduced financial incentives to some of its industries to stimulate its own exports," he says. "Coupled with the weakening dollar and oil's explosive rise, all three factors dampen demand for imports from the region. That gave us cause for pause in deciding to build there."
He briefly toyed with the idea of outsourcing the manufacture of some components but quickly discarded the idea due to the potential problems that many who did choose a Far Eastern manufacturing option have faced.
"It takes a lot of cash to build a supply chain to China and a lot of time," adds Weber. "And with inventory in-transit for six weeks, there's no flexibility to make changes if suddenly needed." His deliberations led him to consider another option--Mexico's maquiladora program.
Source: Outsourcing Journal