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TECMA » Tecma Talk Podcasts
26 minutes | Feb 23, 2016
On the ground: manufacturing in Mexico with Tecma Chairman and CEO, Alan Russell
The Tecma Group of Companies Chairman and CEO, Alan Russell, shares some “on the ground” insight into manufacturing in Mexico at the recent Supply Chain Summit. The event was hosted in early February 2016 by the preeminent maquiladora industry publication, MexicoNow. In his presentation, “On the ground in Mexico,” Alan Russell provided attendees with practical knowledge designed to ensure that those new to manufacturing in Mexico take into account important considerations that are critical for success. For instance, cultural differences are important to take into account when dealing with personnel on the shop floor. In Mexico, more so than in the United States, the family takes precedence over all other considerations. In the workplace, part of the “emotional salary” that is paid to employees takes the form of family-centered celebrations that take place in the plant for occasions such as Mothers’ Day and the International Day of the Child. In his presentation, Tecma’s Chairman and CEO also points out that in the Mexican culture time is a more fluid concept when compared to issues having to do with punctuality in the United States, and that in Mexico position, titles and status carry more weight than may be the case north of the border. While Americans put a premium on efficiency in interpersonal communications in the workplace, those that are manufacturing in Mexico will observe that natives of Mexico will forfeit efficiency for the sake of formality and courtesy. Alan Russell made it a point to note in his Mexico presentation that production in the maquiladoras was not affected adversely by the drug violence that plagued the country until recently. He explained that even at the height of the cartel turf war, not one expatriate working in Mexico was killed or kidnapped, and that, during that time, there was no drug violence related interruptions in supply chain activity. As of the time of this presentation, drug-related turmoil in Mexico, and Ciudad Juarez, in particular, had significantly diminished and continues to do so as civil society returns to normalcy. For those that are considering manufacturing in Mexico whether supported by a Mexican shelter company, or as a wholly-owned subsidiary, Alan Russell’s “On the ground in Mexico,” presentation provides basic and useful information. The post On the ground: manufacturing in Mexico with Tecma Chairman and CEO, Alan Russell appeared first on TECMA » Tecma Talk Podcasts.
22 minutes | Feb 17, 2016
The Ciudad Juarez industrial real-estate market is very active
According to the professionals at CBRE in El Paso, the number of “active users” seeking space in the Ciudad Juarez real-estate market has seen a significant rise in recent years. Tecma Group of Companies: Hello. Welcome to another installation of Tecma Talk Podcasts. These are recorded conversations during which we discuss issues that have to do with manufacturing in Mexico, and related topics. Today we have the incredible pleasure of having two fine gentlemen with us. They happen to work for CBRE, which is a company that operates in the Ciudad Juarez commercial real-estate market, as well as others. We have with us Pedro Nino, Jr. and Andres Sandoval. Gentlemen, how are you today? CBRE: We are doing well. Thank you for having us. Thank you again for the invitation. Tecma Group of Companies: Either Pedro or Andres, could you tell us a little bit about CBRE, before we move on to questions about the commercial real-estate market in Ciudad Juarez? CBRE: Absolutely, this is Pedro. CBRE is a global, full service real-estate company. We handle everything from leases and purchases to financing. A to Z is our line in terms of commercial and industrial real-estate in Ciudad Juarez, and worldwide. We have over fifty thousand employees all over the globe. Our office in El Paso is a little smaller, but we are focused on both sides of the border, this being El Paso and Ciudad Juarez. We also handle the Rio Grande Valley in McAllen and Reynosa. More recently, we have also been very active in Chihuahua City, so the border demographic is our focus here out of El Paso with CBRE. Tecma Group of Companies: Thank you for that overview of CBRE. Now, to start things off, let’s concentrate on taking a look at a 30,000 foot overview, and a snapshot of the market for industrial real-estate in Ciudad Juarez. Please give us a bird’s eye view of what is happening there now. CBRE: This is Andres. The Ciudad Juarez industrial market is measured in square feet. It is about a 64.5 million square foot market, which consists of about five hundred and fifty industrial buildings. If the El Paso industrial real-estate market is added to that, the two markets combined are about one hundred and twenty million square feet. Of course, Ciudad Juarez is known as the “birthplace” of the maquiladora industry. Things got started in the late 1960s. Today Ciudad Juarez has the largest industrial real-estate market on the US-Mexico border. This is both in terms of square footage and employees. As you know, the Ciudad Juarez area has a strong presence of a diversity of industries. These include automotive manufacturers, makers of medical devices and electronics, and appliances. There are manufacturers that are in the Ciudad Juarez industrial real-estate market that are from all over the world. They are mainly from the United States, but we also have companies from places like Japan, Taiwan, Germany, Sweden, Italy, and France. So, it’s a very diverse market, and, of course, it is a very important part of North America’s manufacturing base because of labor costs and location on the US border. Also, we have a very sophisticated industrial real-estate market in terms of both developers and owners of real-estate, as well as contractors and construction companies. Tecma Group of Companies: Thank you. That was a fairly comprehensive overview. Let’s start the questions regarding the Ciudad Juarez industrial market by first taking a look back and then, a look forward. We would like to hear your expert opinion on the topic of what we can expect to see going forward, but first what about 2015? At the end of the year, when you reviewed your information what did you see in terms of vacancy rates, for example, net absorption, and the cost of renting. What kind of things were being developed? Was there a lot of construction going on? CBRE: If you recall, the last time we did a similar podcast, we were praising the market for the turnaround and the very active year that we had in 2014. If we fast forward twenty months, the story continues. The Ciudad Juarez industrial real-estate market continues to be active and hot. The vacancy rate as a percentage of the total market in 2014 was 8.8%. At the end of 2015, it was in decline. We are currently at a 6.5% vacancy. That brings us back to the pre-recession 2007 numbers. So we are officially out of the water. The market is very active in terms of vacancy. If we move forward to look at net absorption, again it reflects some of that very active momentum that I mentioned. In 2014, the industrial real-estate market in Ciudad Juarez had a net absorption rate of 1.8 million square feet. In 2015, it more than doubled at 3.9 million square feet of net absorption. Again, the market is very, very active. These numbers knock the years that preceded 2015 out of the water. It also surpasses the pre-recession peak of the year 2007, at least in the current economic cycle. You did mention rents. In terms of rents, in line with vacancy, depleted available space has an inverse relationship with rent. Vacancy goes down. Rents go up. That is exactly what the Ciudad Juarez industrial real-estate market is showing. This includes all properties and asset classes: A,B, and C. When we calculate the average, the average lease rate, this is per year on a triple net basis, it is US $4.58 per square foot. This is up from US $4.27 during the prior year. Thus, we saw an almost double-digit growth, at 8%, year over year. Of course, we could break these parameters down by Class A, B, and C. Class A mirrors the average. This property is the class that is anchoring the rates, which are quickly approaching US $5.00 per square foot. The other point that you asked me to touch upon was development. The Ciudad Juarez industrial real-estate market was very active in terms of development in 2015. It was the year of expansion for the city. We saw nearly two and one-half million square feet of construction deliveries. This, of course, expanded the market. Of those deliveries, nearly ninety-five percent of them were pre-leased or leased while under construction. Current demand has definitely kept up with new construction. At the end of 2015, construction cooled a bit. We were at seven hundred and twenty-thousand square feet under construction at year’s end. We are, however, expecting another one million square feet plus to deploy in the next couple of months into 2016. Tecma Group of Companies: Things have really turned around, thank you for giving us an overview of what’s past, as well as to a glimpse as to what is to come in the future. In doing so, you used some terminology that some listeners may not be familiar with, such as asset classes A, B, and C. Class A properties are the most desirable buildings, while Classes B and C are lesser so. Tecma Group of Companies: Maybe you can a descriptive difference between an A property and the other two classes? CBRE: (Andres Sandoval) These classifications of A, B, and C are somewhat subjective terminology because it varies from market to market. Class A in El Paso may not be Class A in Chicago, but here in the Ciudad Juarez industrial real-estate market, Class A buildings are the newest and the best buildings in terms of specifications, quality, and location. Class C buildings, on the other end, are older buildings with that are, basically, technically obsolete. The biggest differential has to do with “clear height.” In Ciudad Juarez, we have some buildings that were constructed in the 1970s and the 1980s that have a clear height of twelve or thirteen feet. This is opposed to the Class A buildings that have a twenty-four, a twenty-eight or a thirty-foot clear height. Class A buildings are very easy to identify. Class C are older buildings with technical obsolescence. The broader classification is B, which is comprised of everything in the middle that is neither an A or a C. Again this is relative, but that is a brief description of the classifications. Tecma Group of Companies: Thank you for clarifying things. We heard information a few moments ago on the differential in the vacancy rates of twenty months ago to the present. Pedro mentioned that, as far as vacancy rates go, we are back to 2008 levels. What kind of activity do you attribute this change to? Is it the result of new businesses coming in to occupy space, or is the activity that you mentioned mainly a function of the expansion of existing businesses? CBRE: Most of the activity that we have seen in the last couple of years has been with the expansion of companies that are already operating in the market. Only about eleven percent of the activity has been with companies that are new to the Ciudad Juarez industrial real-estate market. Of that activity, the automotive industry continues to be the sector with the most movement. This is followed by distribution and technology, as well as medical device manufacturers. Tecma Group of Companies: It is good to hear that more medical device companies are moving into Ciudad Juarez, since this is a pretty recession proof manufacturing activity. Speaking again about development, what kind of things are being built in Ciudad Juarez, and where, and who is building them? CBRE: Referring back to Pedro’s comment about current vacancy rates being at six and a half percent, a market is considered to be balanced when the vacancy rate is between six and eight percent. At those levels, developers begin building inventory, or spec buildings as we call them. Today, we have several developers building new inventory, or spec space, and these are local developers, as well as institutional developers. We have ProLogis constructing two speculative buildings this year. One will be a sixty thousand square foot building, while the other will be a one hundred and ninety thousand square foot building. American Industries is building one hundred and twenty thousand squar
19 minutes | Nov 25, 2015
The Tijuana industrial real-estate market from A to Z with Jean Paul de Kervor
The Tijuana industrial real-estate market is one of the most active in Mexico. Tecma Group of Companies: Hello and welcome to another installation of Tecma Talk podcasts. If you are a regular listener to these recordings, you know that they are centered upon issues that have to do with manufacturing in Mexico, or manufacturing in Mexico itself. Today, we have the pleasure of having JP de Kervor with us. He is from a company called Maquila Properties. JP please introduce yourself and tell us a little bit about your company before we get into the questions that are on the subject of what is going on today in the Tijuana industrial real-estate market. Welcome JP. How are you today? Jean Paul de Kervor: Excellent. Thanks. Since 1988, I have been involved in the Tijuana industrial real-estate market focusing on tenant representation and new start-ups in the high tech industry. I started out in manufacturing, working for a company called California Chemical in setting up a company in Mexico. As a result, I have a lot of experience on the operations side of things. Over the course of the project, I realized that the real-estate broker was making more money than I was, and decided to switch over pretty quickly to real-estate back in 1989. Tecma Group of Companies: That sounds like it was a smart move. Can you tell us a little bit about Maquila Properties, and its place in the Tijuana industrial real-estate market? Jean Paul de Kervor: Maquila Properties has done in the area of one hundred million square feet of transactions in the Baja region, as well as a few things in San Diego and Monterrey, and Juarez, but, really, we are focused upon the Tijuana industrial real-estate market. We have done some major transactions. For instance, we recently sold the Snapple building to Cerveceria Mexicana. This was a 170,000 square foot building on fifty acres. We have also done a lot of work in the medical field, which happens to be to be one of the hot areas in the Tijuana region. We have done really well with it over the last few decades. Tecma Group of Companies: It’s good to hear that. From what we read and see, in terms of industry trends, there is a lot of interest in the Tijuana area. As you may know, Tecma recently acquired a shelter company in your area called Made in Mexico, Inc. It is a pleasure getting involved in the market over there, and having the opportunity to speak with people like you that understand it. You mentioned that you started in the Tijuana industrial real-estate market in 1989. Can you provide some insight into what is going on in terms of industry in Tijuana today, and how does that compare to what things look like when you first started out in 1989? Jean Paul de Kervor: There are a lot of similarities. I actually did my MBA thesis on how to finance maquiladoras. When I first began in the Tijuana industrial real-estate market all the manufacturers would come down to the border, and then as soon as they got there they would say, “how am I going to finance this move? I’d like to buy a building, and I’d like to move my equipment to Mexico.” They quickly found out, back in 1989, you lose your UCC-1 filing and, guess what, your bank doesn’t want to use it as assets against collateralized lending and, not only that, they don’t do real-estate in Mexico. So, this was a serious question. At the time, GE Capital was pretty much the only game in town for any kind of financing, and there were a few Texas banks doing some financing with the proper US guarantees. That being said, because of the limited avenues for financing at that time, the entire Tijuana industrial real-estate market was eighty to ninety percent controlled by five families, i.e., the Bustamantes, the Fimbres and others. I know that in El Paso and Juarez that a similar, close knit situation exists. Back then we were getting a sixteen to twenty percent cap rate on most of our buildings, and the vacancy rate was at five percent which it is right now. Back then the lack of financing really made it almost impossible to build speculative buildings, so everything was done on a “build-to-suit” basis. Today we are back to a similar situation, although now there is financing and “Fibras” and all kinds of other ways to finance operations in Mexico. So today, we are seeing speculative buildings being constructed. Back then, in 1988 and 1989, we had, like I said, five percent vacancy, but, if you wanted to get a quality build that was over one hundred thousand square feet, you had to build yourself a building. Those were kind of fun days. I really enjoyed doing build-to-suits for different big companies, and it was quite a show. We would get a six month deposit down in order to buy steel, bring in a landlord as one of the partners, a construction company as one of the partners and piece something together. Nowadays, things are much more structured. There are a lot of institutions like ProLogis and brothers like Finsa, and all the Fibras out there and McQuarrie that have plenty of capital available at low rates that allow them to finance all kinds of construction. In fact, Vesta, for instance is building the largest spec building that we have ever had in Tijuana. It will be three hundred thousand square feet. I am going to tip my hat to Elias Laniado for doing that. All the fundamentals are extremely strong right now. As I have said right now in the Tijuana industrial real-estate market, we have an approximately five percent vacancy rate in about a sixty million square foot market. The vacancy that exists that is relative to a user that is interested in over one hundred thousand square feet is easily divided along the lines of “A,” “B,” and “C” properties, where about one-third of what is available is Class A property. This would include recent construction with at least twenty-eight foot clear height, and pretty much modern specifications like you might find in the US. Then there is Class B property. These are typically a little older, maybe ten fifteen or twenty years old, yet well-maintained and, maybe, better outfitted in some ways as regards things like power and air-conditioned offices, and, in some cases, maybe even sprinkler systems. Finally, there are Class C buildings, which typically do not have very high ceilings. In these structures there may be a sixteen to eighteen foot clear height, seventy-five percent lot coverage with difficult parking, etc. in the older areas of town. We have only about thirteen buildings available right now, if you do not include the ones that are under construction. We only have thirteen opportunities above one hundred thousand square feet in the market. One year ago, there were seventeen. We’ve been absorbing space in the Tijuana industrial real-estate market at a rate of about two million square feet per year. We’re constructing space at a rate of about one million square feet per year. I think that construction is going to skyrocket, and I think that we’re going to continue to see a lot of demand in the Tijuana industrial real-estate market, which will result in somewhat of an increase in rental rates. Tecma Group of Companies: If the market tightens up, you will see a little bit of that. You just gave us some very good information on absorption rates and what kind of activity in general is going on in the Tijuana area. If you were looking at it from the perspective of comparing it to information that you get from other regions, how would you characterize the situation in the Tijuana industrial real-estate market in view of other places throughout Mexico? Jean Paul de Kervor: There are not a large number of places to compare it to, although some would include Guadalajara, Monterrey, Queretaro and Juarez are pretty much the areas that are in the same size range as Tijuana. Ciudad Juarez has a little bit more vacancy. Queretaro has a little less. The Bajio has been growing very quickly, as everyone knows, with the automotive industry. We are seeing some tightening up in the markets down in that area. As far as vacancies are concerned, the Tijuana industrial real-estate market is pretty much near the bottom among the major markets in Mexico. Tecma Group of Companies: Beyond this, when we look at the regions, we know where movement is occurring. If you are an observer of manufacturing in Mexico, you are aware that the center of the country is increasingly automotive. You know that what is going on in Tijuana. There is a lot of activity, as you said, in Juarez, but the concentration of this particular podcast is Tijuana. Just so that the people that are listening that have an interest in the Tijuana industrial real-estate market have a sense of price, in terms of a broad outline, what can you tell us about cost? Jean Paul de Kervor: We have a lot of new construction going on. Most of that is comprised of very modern specifications. This means that they usually have at least twenty-eight feet clear height and less than fifty percent lot coverage. They have modern finishes. Some of them have TPO membrane roofs, etc. Those brand new buildings are in the asking range of forty-five or forty-six cents per square foot, triple net. That’s per month. There are triple nets on those buildings, because some of larger corporations charge management fees which can bring price up to as high as six or seven cents per square foot more per month. Although they average about three to four square cents per square foot per month. At this point, as far as the triple net fees are concerned. So, the triple net fees include property tax, insurance and maintenance. Those are typically charged on top of the rent in most of the institutional industrial parks and newer buildings. Where some of the parks charge what we call “industrial gross.” This means the industrial park owner in the Tijuana industrial real-estate market will pay the for property taxes, maintenance and security and other items. Typically, you would only have to pay for insurance above the cost of the rent of the building in this scenario. It costs about $2500 for a twenty-four hour security guard for a month. Some of the industrial parks in the Tijuana area have amenities such as on-site childcare and are in proximity to Mexican Social Security health clinics, so there a lot of things to look for. Right now, industrial prices on land which ultimately determines what total cost for construction of a building is. Industrial land goes from US $30 a square meter, on the outskirts of town, to US $120 a square meter, for something closer to Otay. In Otay proper, it is basically impossible to find any land for sale. It’s just not available. You have to go down to Alomar, or other parts of town. There has been a bit of a feeding frenzy. Vesta just bought another thirteen acres in Alomar. This is raw land with a purchase price of over US $80 per square meter. Tecma Group of Companies: One of the things that we do during Tecma Talk podcasts is, given the fact that there is a lot of information to be had and we just scratch the surface. Is to ask those that participate in them if they would be willing to make themselves available to listeners who may have follow-up questions. That being the case, would you be willing to take questions from individuals or companies that may be looking to set up manufacturing operations in the Tijuana industrial real-estate market? If that is the case, how would such persons or organizations contact you? Jean Paul de Kervor: Interested parties can always go on www.maquilaproperties.com. They can also call our number at the office. It is 858-551-8000. Tecma Group of Companies: Thank you for speaking with us today JP. We’ll also include a link to your LinkedIn profile in the body of this transcript. The post The Tijuana industrial real-estate market from A to Z with Jean Paul de Kervor appeared first on TECMA » Tecma Talk Podcasts.
15 minutes | Nov 13, 2015
Tecma Talks to customs broker, Joe Alcantar, about the new US Customs Automated Commercial Environment
The Automated Commercial Environment (ACE) replaces a the Automated Commercial System (ACS), which has been in place since the late 1980s Tecma Group of Companies: Hello, and welcome to another installation of Tecma Talk podcasts. If you are a frequent listener to these recordings, you know that they consist of discussions between Tecma and individuals that have expertise in issues that have to do with manufacturing in Mexico, or topics that are related. You also know that the folks that we speak with are experts in their fields, both internal to the Tecma Group, as well as folks from the outside. Today we happen to have an external expert with us. His name is Joe Alcantar. I’ll let Joe introduce himself, and say a little about his company in order to inform you as to what Joe’s expertise is. Joe Alcantar: My name is Joe Alcantar. I am president and owner of Brown, Alcantar and Brown, Inc. Customs Brokers. A customs broker is a company that provides import and export clearance services through US Customs. I have been involved in doing this since 1973, and earned my customs broker’s license in 1974. The history of the company begins with my father, one of the original founders. He started this business in 1949. To say the least, there have been a lot of changes from that time to the present day. Tecma Group of Companies: Joe, back in the older days that you mentioned, things consisted of pushing a lot of paper. Surely, things have changed, at least in that realm. Today technology is at the forefront. That comment is a good segue way into today’s discussion. What we are going to talk about, and you are going to have to explain the particulars of this, because I have no expertise in this area. I’ve been reading recently that at the beginning of this month, November 2015, there were some changes made to what is known as the Automated Commercial Environment of the US Customs and Border Protection Service. There are some changes that are going to be coming up. Today, we are going to be talking about the Automated Commercial Environment, as it is known by its acronym ACE. The first question to get into the topic is, what is ACE an why is Customs changing what is going on in the environment? Joe Alcantar: That’s an excellent question. The Automated Commercial Environment (ACE) is a totally new system, a new software system, for processing imports as well exports. It is going to replace the system that is currently being used and has been in place since the late 1980s. That system is called Automated Commercial System, which is “ACS.” As you can imagine, this system has been around for a long time, and, because of that, there have been many efforts to do patches and upgrades. The Automated Commercial Environment (ACE), however, is going to be a totally new operating system for Customs and people that file entries for imports and exports through Customs. Such parties include customs brokers, exporters and importers. Customs has been working very hard on this. It is a huge, multibillion dollar project. In a nutshell, that is what the Automated Commercial Environment (ACE) is. Tecma Group of Companies: The answer to the question of why is Customs changing things is due to the fact that, as you mentioned, the system that has been in place since the late 1980s has been jerry rigged and patched. Would that be an accurate assessment? Joe Alcantar: Yes, that would be accurate. Tecma Group of Companies: So that the listeners have an idea of time frame, can you provide information that has do with Automated Commercial Environment implementation dates? Joe Alcantar: Yes, that is a really critical question. The ACE implementation dates are very important. Actually, the first date has already been pushed back. Originally Customs wanted to “go live” with the Automated Commercial Environment at certain entry times and with certain other, what they call, “partner agencies.” That was going to take place in November. Now, this has been postponed back to February 28th of 2016. According to Customs’ own documents, that is when they are saying that ACE must be used and ACS will no longer be available for filing electronic and associate entry summaries. In addition, FDA, NHTSA, APHIS must be filed in ACE and ACS will no longer be available. That happens, again, on February 28, 2016. So that is the next date that people are looking forward to, or maybe dreading. This may be so just because of the ramifications of that date. One of the things that ACE is doing is, as I mentioned, implementing a whole new operating system. For example, for a company like mine, we are customs brokers that clear shipments and are experts on these operations. We know rules and regulations, and classification. We have to have a software company, a third-party vendor, that is working with the programmers at Customs and other agencies to program the Automated Commercial Environment (ACE). It is a challenge to say the least. When these dates are coming up, it causes everyone to get a little bit nervous. The November date was postponed because multiple appeals were made by brokers, importers and exporters to Customs. Those parties said that, especially the programmers, that they felt that not enough testing had been done on certain new modules that Customs was wanting. That is the next date. Then, in July of 2016, when they publish what they call their “final rule,” ACE must be used for filing multiple with other, what are called, “Government Partner Agencies.” Tecma Group of Companies: Joe, what are Government Partner Agencies? Joe Alcantar: They use the acronym PGAs. What these are other government agencies. For example, now, in the present system (the ACS system), entries are filed for Customs purposes, and also for Food and Drug (FDA). So there is an interface through the ACS Customs system and the FDA, and data can be transmitted between Customs and the FDA. Customs can then release the shipments electronically. Under the new Automated Commercial Environment, that is going to be expanded to include other Government Partner Agencies (PGAs). Among them are the USDA, the USDA Agriculture Marketing Service, the Food Safety and Inspection Service, the Center for Disease Control, the Alcohol and Tax and Trade Bureau, and the National Marine Fisheries Service, for example. Additionally there will be defense controls, DEA, or Drug Enforcement interface and the Fish and Wildlife Service. These are all new Partner Government Agencies that have never had an interface to the Customs electronic processing system. You can imagine. We are going from a couple of government entities that are presently processing and releasing electronically to adding all of these other Partner Government Agencies. This is why so many people involved in this process are pretty nervous. The switch is going to flip which adds all these other government agencies that each have their own requirements. To say the least, the implementation of the Automated Commercial Environment is a huge undertaking. Tecma Group of Companies: This does sound complex. For people that are in manufacturing, or that are doing importing and exporting, other than calling someone like you to make sense of all of this, what should they be doing to prepare themselves for the implementation of the Automated Commercial Environment? How should they approach this? Joe Alcantar: If you are an importer or an exporter, I think that the first thing that you do is be sure that your present service provider is participating at 100% in the ACE program, and that they are participating in what are called the “pilot” programs. Pilot programs are programs that are being rolled out with the PGAs for testing purposes. For example, Food and Drug presently can be tested through the Automated Commercial Environment (ACE) pilot program. Our company is participating in that test with our software service provider with Customs, and with Food and Drug. It is a pretty complicated process, because we have to coordinate with each of the agencies involved. They want to be able to observe and to make sure that the data is transmittable and visible to everyone that is involved. It is critical that the companies being used in the implementation of the software is working diligently on the new ACE system and that they are working with the Government Partner Agencies’ pilot programs and Customs. In terms of our service provider, they have a conference call on a weekly basis with Customs’ programmers and all of these other Partner Government Agencies. There is a lot of education going on back and forth, and information is being shared. For example, one of the new Government Partner Agencies is the USDA Marketing Service. If they have not been electronic up to this point, they are required to, for the shipping of produce such as tomatoes, or onions or grapes that have to be graded. When, at first, they talked to our programmers, they were saying that they needed the data from us, the broker, two days before the shipments arrive. Of course, we are on the southern border, shipments of produce cross within hours of being picked, packed and put in a truck and shipped to the border. We had to explain to them that to get data to them two days prior to the shipment arriving was not feasible. That isn’t the “real world” in which we live. In the real world things on the border move within minute and hour time frames. This being the case, they had to adjust how this is going to be done. With regard to the Automated Commercial Environment, it is very important to make sure that your company is “in the loop.” Tecma Group of Companies: This sounds incredibly challenging. As is the case with all of the Tecma Talk podcasts that we do, we take on topics that we hope provide useful and relevant information to listeners. Most of the time, if not all of the time, however, we just scratch the surface of some very complex issues in an introductory manner. That being the case, Joe, if someone wants to give you a call to be able to dive in a little deeper on this subject, how can they get in touch with you to talk about the Automated Commercial Environment? Joe Alcantar Thank you for asking. You can get in touch with me directly on my office phone, which is 915-298-6938, or my cell phone, which is 915-727-2993. Of course, our company website is www.babinc.com. The post Tecma Talks to customs broker, Joe Alcantar, about the new US Customs Automated Commercial Environment appeared first on TECMA » Tecma Talk Podcasts.
17 minutes | Oct 29, 2015
Tecma Transportation Services achieves Clean Transportation certification in Mexico
Tecma Transportion Services’ head, John Rippee, explains that Clean Transportation certification in Mexico is becoming more common. Tecma Group of Companies: Welcome to another installation of Tecma Talk podcasts. If you are frequent listener to these recordings, you know that they are discussions with experts that are both internal and external to the Tecma Group of Companies. The discussions basically center around issues that have to do with manufacturing in Mexico and related topics. Today we have the privilege of speaking with John Rippee, a Tecma Group internal expert. He is joining us. John, how are you? Could you please introduce yourself to the listeners. John Rippee: I’m fine. I am the current Vice President of Border Solutions at Tecma. I’m specifically responsible for increased efficiencies for border crossing, customs processing and compliance. My job is to constantly try to make the importation and exportation of goods moving in and out of our borders as invisible and efficient as is possible for Tecma clients. If you can run a business without the worry and concerns related to late shipments, long border lines and all the troubles that come with those issues, then you are typically a happy customer. Our goal here at Tecma is to make this happen. Tecma Group of Companies: John, recently Tecma was able to put a feather in its cap. A team of folks from the organization went down to Mexico City and received, in English it’s called the Clean Transport in Mexico certification or award, while in Spanish it’s called “Transporte Limpio.” From what I understand, there is an EPA program that is something that mirrors this program in Mexico. Could you explain a bit about both what Mexico’s Clean transport certification program is, as well as the EPA “Smartways” program that mirrors it? John Rippee: Some years ago, the EPA, in the United States, came up with the Smartway Transport Partnership. Currently there are close to three thousand companies in the US that are involved in that program. Essentially, what it does is that it promotes in vehicle technologies that reduce fuel consumption and emissions in the United States. That makes the air in cities cleaner, and it makes communities more “livable.” It has been very successful with its branding. A lot of people listening to this recording will be very familiar with the brand “Smartway,” because they may see a lot of trucks going up and down the road with the logo on them. It became very successful via branding, because, now, companies that are Smartway get preferred contracting with a number of companies that exist out there. Mostly because, one, they want to be “green,” and, two, it’s also cheaper. If you can reduce your emissions, you burn less fuel and fuel costs money. That is the basis of the entire program. Most of the participating companies have seen about a ten to twenty percent reduction in fuel consumption, which translates into a ten to twenty percent reduced cost of the fuel that is being purchased for moving product. Mexico has seen this success of the Smartway Program over the years, and several years ago decided to mirror that program. They set their agents up and taught them how to audit and to train companies to take measures to receive Clean Transportation certification in Mexico. Since Tecma has its own logistics company for cross border trade activities, the company decided to enter into that program because it made sense. We want to contribute to the creation of a sustainable and livable city, and we certainly want to reduce the shipping costs that go directly to our clients. So both Smartways and Transporte Limipio, or Clean Transport, officials are looking to expand the programs to include more participants. This will help to reduce fuel consumption related emissions. We’ll probably see the creation and expansion of similar programs occur in other countries in the future. That is what we are looking at currently. Tecma Group of Companies: John, you touched upon a couple of benefits a moment ago. Particularly, interesting is the one that has to do with the Smartways program being a recognized brand, and, over time, the anticipation that Mexico’s Clean transport certification, or Transporte Limpio brand, will have the same level of recognition in Mexico. Do you see any potential benefits that may come in the future that might not have evidenced themselves already? John Rippee: Yes, we do. We are seeing a lot of agencies that are trying to measure things like “wait times” and air quality at ports of entry in order to understand all of the problems that obstruct that goal of making cities more livable, as well as trade related metrics that have to do with border crossing times. This is a critical component of all of those things. Most of the time, all that we hear about is security, security, security. Well, it is very clear that environmental conditions and considerations are becoming elements of the equation that are increasingly important to trade. This is something that companies, as well as governments, are beginning to look at to be on point to make the conditions under which workers are operating more livable, sustainable and less frustrating. One of those elements will be those reduced emissions at those ports of entry. So, I think that, in the future, what we are going to see is the measurement of those performance variables such as emissions. That is going to be an area in which agencies will hold discussions in conjunction with security systems and trade compliance. We want to make sure that we are taxing the goods that should be taxed. Governments certainly need to operate, but the emissions toll on particular environments in the cities in which we live is an important issue that will become more of a pressure point as we move towards the future, as well as a benefit. The companies that are in Smartways and have Clean Transport certification in Mexico. Companies that are going to reduce their emissions are probably going to be at the forefront of the benefits for reduced crossing times because they put forth the effort to put performance variables and technologies and investment are going to allowed to cross at security apparatus systems at a much faster rate. Tecma Group of Companies: That sounds good, John. Because, as you mentioned, a lot of idling goes on at the border, and as they idle they are probably emitting many things into the air that are not very good. Obviously, it is well worth the effort to get the Clean Transport certification in Mexico. Can you tell the listeners a little bit about the process of getting certified, in case there are some listeners that are interested in doing so? Some of them may be people that are involved in transportation companies that might want to look into this. John Rippee: The Transporte Limpio program, or the Clean Transport certification in Mexico, is a joint effort by two government agencies the SCT, or the Secretaría de Comunicaciones y Transportes, and SEMARNAT. SEMARNAT is Mexico’s equivalent of the EPA in the US. There is a website for the Clean Transport certification in Mexico. You can go to it and fill out all the bureaucratic questions that are there. The process begins by them sending personnel to go in to review your company’s current status. They will bring with them a list of questions which you will be required to fill out and answer. After this you must correct anything that exists within the organization that are in discrepancy with the Clean Transport certification in Mexico program requirements. Once you are ready, an auditor will be sent to your business. The auditor will spend two to three days in the applicant’s office conducting training and going over things. Some drivers learn specific training, which may include driving techniques that are designed to reduce emissions. This can be terrific. At Tecma Transportation Services, we have actually gone from using an average of 5.5 mpg to a fleet average of 6.8 mpg. This has been a dramatic turn for a fleet that burns millions of gallons of fuel over the course of a year. Once we achieved this, they went back and reviewed all the action items that had been set up for us to attend to. Once we completed the action items, they formally awarded a partnership certificate. During this past weekend, we sent our team down to Mexico City to participate in the official Clean Transport certification in Mexico reception with the other companies that were awarded the designation this year. For us, it took about a year and a half to address the items that needed tending to, get the appropriate training and move forward with the process, and it has been very beneficial to us. Tecma Group of Companies: John, you touched upon the critical issue of wait times for moving things back and forth across the border. Is there any more that you can say about how this will, over the course of time, help companies to access companies that have the Clean Transport certification in Mexico that will be able to deliver to them quicker and more efficiently? John Rippee: What we are seeing is a move towards a common operating picture. What I mean by that is that there are so many compliance and regulatory issues for just transportation companies. What I personally believe is going to happen in the future is that certification processes such as those in place for Transporte Limpio and Smartway will eventually grant cross recognition. Very much like C-TPAT in the US and NEEC in Mexico, which are both moving in that direction. For those listeners that aren’t familiar with those programs they are related to trade security, and have received US-Mexico cross recognition. I fully expect Smartway and Transporte Limpio, the Clean Transport certification program in Mexico, to do the same in the future. Beyond that we are going to see the merging of the security apparatus systems, as well as the merging of green certifications. This is because of the benefits of the companies going through the process need to be recognized for having made the effort to do so. Remember, one they are secure, and two they are “green.” As a result they will have reduced wait times. We are certainly going to see dedicated lanes for those companies that go through the process and receive these certifications. Because of efforts made by firms in this area, there will be a dramatic reduction in terms of their shipping costs. It is important to know that there is a lot of room for improvement in supply chain efficiency, specifically in international trade. Tecma Group of Companies: John, it’s interesting to hear how what you describe is speeding things up, as well as how reduced fuel emissions will help the environment, and cut down on the traffic jams that some of the border crossings have. Before wrapping things up, is there any other future consideration that you feel is worth mentioning in terms of where you think the things that you have spoken about are heading? John Rippee: Yes, I think that where things are headed is what I have mentioned: the merging of all of these certifications, including the Clean Transport certification program in Mexico. One common operating picture will emerge. I think that as agencies, and international agencies, in fact, continue to merge and share information, it is going to be very interesting for companies that stay on the forefront of that trend. They can take advantage of those systems. They can be very friendly. Transparency makes lives much easier, rather than the typical infighting, as it were, between government agencies and companies as they feel the heavy burden of all these regulations, whereas, if you can simplify and have a unified, top-down approach, things can become easier, cheaper and can result in a better and brighter future for everybody involved. Things are going to get interesting very fast. Tecma Group of Companies: John, given that fact, first of all we are always appreciative of the fact that you are willing to talk about things that are useful and relevant to people that are involved in international trade, but, as things progress, would you be willing to take questions from individuals that might listen to this podcast and that could benefit from advice from someone like you? John Rippee: Absolutely. There is a blog on the Tecma website. All of our professionals write particular articles on relevant subject matter to communicate what we know, when we know and how we know it. We do podcasts, as well. People are welcome to reach out to us via that website. They can feel free to call any of the professionals in our organization with their Mexico manufacturing and business related questions. The post Tecma Transportation Services achieves Clean Transportation certification in Mexico appeared first on TECMA » Tecma Talk Podcasts.
15 minutes | Oct 15, 2015
Tecma Talks Mexican industrial real-estate and investment with Rafael McCadden of Colliers International
According to Rafael McCadden of Colliers International Mexican industrial real-estate occupany and absorption rates are healthy. Tecma Group of Companies: Hello, and welcome to another installation of Tecma Talk podcasts. If you are a frequent listener to these recordings, you know that they consist of discussions with individuals that are experts in issues dealing with manufacturing in Mexico or related topics. Today is no different. We have the distinct pleasure of having an opportunity to converse with one of my favorite folks to chat with. His name is Rafael McCadden. He is with Colliers, which is a very well-known global industrial real-estate firm. He’s based out of Mexico City. I’ll let him introduce himself to you, and to provide a little bit of background information before we take on today’s questions. Rafael, how are you? Rafael McCadden: I’m good. How about you? Tecma Group of Companies: Couldn’t be better. Thanks. Tell us a little bit about yourself so that the listeners have an understanding of the context from which you speak. Rafael McCadden: Sure. Thank you. Well, I have been in real-estate for over thirty years. I have been in industrial real-estate for twenty years now, and with Colliers as director of the industrial and logistics division in Mexico for over ten years. It has been a very exciting career. I can say that it is very interesting to see what is happening with industrial real-estate in Mexico. Tecma Group of Companies: Rafael, the last time we spoke, and it’s been quite a while. Actually, it has been over a year. At that time you had commented that Mexico had pretty much succeeded in emerging from the difficult period that began in 2008, and that the market had picked up for industrial real-estate in Mexico on a national level. Is that trend continuing? If yes, can you provide us any statistics that will give us an idea of what the activity levels of today are? Rafael McCadden: Sure. I would say that the trend continues to be positive in most markets in Mexico. Vacancy rates continue to come down. Net absorption rates are rising. There are a few things that make this happen. One, I would consider, is being neighbors with the US. I would say that this is the most important factor. Sharing a 2,000 mile border with the United States is one of the most important things that has promoted and benefited industrial real-estate in Mexico. Another thing is that the “baby boomer” generation in Mexico is in its mid-20s. This is a very important consideration in that it is generating a lot of people coming out of school that are eager to work. That has helped a lot in terms of hiring and maintaining low turnover rates. Companies are recognizing that there are plenty of young engineers available to hire for design centers, technical centers and, of course, for manufacturing lines, as well. Tecma Group of Companies: So, all in all, things are still looking positive. Would this be a safe assumption to make? Rafael McCadden: Yes, definitely. Now some of the regions in Mexico do have, I would say, a more prosperous growth and set of circumstances. The Bajio region, which includes four states that are located to the north of Mexico City that are Aguascalientes, San Luis Potosi, Guanajuato and Queretaro, are the ones that are posting the best numbers in terms of growth. This is mainly because of investment that is occurring in the automotive industry. There are four new Japanese assembly plants in the region. It is also said that there are over 300 Japanese suppliers to the automotive industry that have moved in. Of course, that is huge. In a period of less than five years, Mexico has duplicated its automotive production capacity. It’s not only Japanese companies, however. BMW has begun the construction of its new assembly facility in San Luis Potosi, and, just Southeast of Mexico City, in the State of Puebla, Audi is almost ready to roll out new production of the Q5. By far, the automotive industry is the main driver for the absorption of industrial real-estate in Mexico. Tecma Group of Companies: This has been something that has been visible in the press, and the numbers have been very, very, very significant. Do you see any other movement? Is there anything happening in medical devices, aerospace or electronics? Rafael McCadden: Sure. Yes, absolutely. Besides the automotive industry there are other success stories in, I would say, other sectors. As you mentioned, there has been growth in medical device manufacturing. These items are produced mainly in border cities. I would say that Tijuana is the leader in the medical device area. A lot of that growth is because the “baby boomer” generation in the United States is around 60 years old on average now, and, as such, they require more and more medical attention. This is something that has created a lot of growth in the medical device manufacturing industry in Mexico. This includes, with it, other sectors, or sub-sectors, like plastics injection molding, the assembly of surgery kits, etc. There are all sorts of medical devices that are now being exported from Mexico into the United States. As you also mentioned, aerospace is also a very important sector that has registered very high growth rates over the course of the last fifteen years. The aerospace industry in Mexico was in its infancy a decade and a half ago. In recent years, it has been growing so quickly that it is no longer a “teenager,” but has reached an even higher level of maturity. The aerospace industry is clustered in certain main cities in Mexico, which include: Queretaro, Mexicali, Chihuahua, Tijuana and a little bit of Monterrey. Tecma Group of Companies: We can’t forget Guaymas and Empalme, my friend, in the State of Sonora. Rafael McCadden: Yes, you are absolutely right. That is a very important success story. The aerospace industry growth in Guaymas and Empalme, Sonora has been very interesting, in great part, because of the connection between Phoenix, which is a very important US aerospace hub in the United States, and that area to the south on the Sea of Cortez that is popular with many people in Phoenix and Tucson. That in part helped to facilitate the growth of Empalme and Guaymas. Yes, definitely that is a very important cluster for aerospace manufacturing in Mexico. Thank you for reminding me of that. Tecma Group of Companies: I thought that we would have been remiss, if we did not include that area. You spend your days working with investors that come, and I am sure that you tour buildings with them. We’re going to operate under the assumption that most of the individuals that you are walking those buildings with are US investors, but you just mentioned the Japanese, for instance. Where are other investors coming from? Can you give the listeners an ideas of the diversity of the interest that Mexico sees from all corners of the globe? Rafael McCadden: The main countries that are investing in Mexican industrial real-estate is, definitely, the United States; Canada is also heavily involved with aerospace and automotive. I would say that European companies, especially those from Germany, and, as I mentioned Audi and BMW are now building their new assembly plants, are quite active as regards Mexican industrial real-estate. Those are the main countries that are investing in Mexican industry. Tecma Group of Companies: Since you are seeing what kind of movement is happening in Mexican industrial real-estate is occurring on a daily basis, what advice would you give to anyone that is listening to this podcast as regards doing research on the possibility of leasing or buying Mexican real-estate for inustrial purposes? What would you to do as they start their efforts? Rafael McCadden: Sure. First of all, I think that it is very important to note that just having someone in your company that speaks Spanish doesn’t mean that that is the right person to assign the lead to for a project in Mexico. That could be a big mistake. We’ve lived that before. You can have that person be part of the team. These days, logistics teams, are playing a more predominant role in the site selection process. Of course, there are other teams within companies that are involved in looking at Mexican industrial real-estate. If the company has a real-estate team, they would be very important to include. Sometimes sourcing and finance teams are also involved. Besides putting together a team, which is what we suggest, we definitely think that hiring a site selection expert is the right move. This is recommendable, because, sometimes, decisions are made without doing the right analysis. We, at Colliers International, do this on a daily basis. Of course, there are other companies that do the same thing that we do. When you’re sick, you go to the doctor. When you need legal advice, you visit an attorney. Well, when you are doing site selection related to Mexican industrial real-estate, you should definitely look for a professional. This should be an expert that knows his way around the market, and can give you the best advice. Tecma Group of Companies: That is good counsel, because there are a lot of variables that come into play when you are looking to site something optimally in terms of industry. Those comments lead me into the final questions that we ask individuals with whom we speak with during Tecma Talk podcasts: For anybody that may be listening to this recording, how would they call or email you in order to ask you questions regarding Mexican industrial real-estate and the site selection process? Rafael McCadden: Yes. Thank you. They can Google me. That’s one way to do it. The other way to contact me would be by telephone in Mexico City. I am based in Mexico City, although I do site selection analysis throughout Mexico. My phone number is country code 52, then 55-52093625. I can also be found on the Colliers website. Additionally, my email address is email@example.com The post Tecma Talks Mexican industrial real-estate and investment with Rafael McCadden of Colliers International appeared first on TECMA » Tecma Talk Podcasts.
22 minutes | Sep 30, 2015
Tecma Talks with global supply chain specialist, Michael Hetzel
Global supply chain specialist, Michael Hetzel, talks to Tecma about looking at the short and long term horizons. Tecma Group of Companies: Hello and welcome to another installation of Tecma Talk podcasts. If you are a repeat listener to these recordings, you know that Tecma Talk podcasts consist of conversations with experts that are both internal and external to the Tecma Group of companies. We talk about manufacturing in Mexico, and things that are related. Today is no different. An external expert is with us. His name is Michael Hetzel. Michael is an individual that has voluminous experience as a global supply chain specialist, and will speak to us today with respect to supply chain and its function. Michael, how are you ? Michael Hetzel: I’m doing well. Thanks for having me in. Tecma Group of Companies: Michael, just so that the individuals that are listening to this podcast have a bit of a frame of reference from the perspective from which you speak, can you please provide us with a little bit of information about your personal and professional background? Michael Hetzel: I’ve spent eighteen years in manufacturing. Nine and a half of those were as the CEO of a metal stamping and injection molding company serving markets in automotive, electronics, telecom and so forth. We grew that company four hundred and eighty percent and sold it to a publicly traded company. I have spent the last thirteen years as vice president of business development for this hemisphere for a third-party quality services firm. We were providing services in thirty-eight countries. That assignment ended just this July. Along the way, I’ve also conducted a speaking practice. I make presentations to various groups, and also I publish articles on global trade, and supply chains and quality. Some of the groups include the North American Die-Casting Association, the Society of Manufacturing Engineers and others. I’ve spoken in five countries, so far, and, at this time, I am in transition and looking for my next exciting assignment in international trade. Tecma Group of Companies: That is a good thing for people that are listening to this Tecma Talk podcast to know, considering the fact that the experience that you have in this area is vast. For today’s discussion, we have five questions that we are going to look at. The first among them that I would like to pose to you, Michael, is: From your perspective, what are the most significant changes that are currently occurring in global supply chains? Michael Hetzel: Well, there are two tracks that are associated to what I am seeing in the supply chains. One track is related to the idea of short-term visibility, or the near term horizon, while the other has to do with the longer term horizon. In the short-term, people are seeing a decrease in oil prices, which was impacting their overseas costs rather than their nearshore costs (in this market anyway). Unfortunately, in some cases, people tend to think that this is going to last forever. It’s like at one time, not long ago, they thought that high bunker charges, and so forth, were going to last forever. With respect to the longer term view, companies are adjusting their supply chains and architecture to reflect a longer term view of manufacturing their products in proximity to market. This is something that I have advocated for many years. Sometimes this means having supply chain elements that are comprised of the same inputs in several countries. In short, there is a lot of change going on. In the US market, for example, many companies are pulling back in from Asia. A couple of recent studies by AlixPartners and KPMG show that, overall, Mexico is a lower cost location to manufacture for the US market than China is. From our experience, this is absolutely true, although Mexico has the constraint of a narrower availability of categories compared to some of the other Asian countries, particularly China. This issue can be overcome, therefore, this is where companies should be looking. There is a lot of exciting activity transpiring in supply chain architecture. Companies will benefit differently, depending on the outlook that they take. Tecma Group of Companies: Getting back to the concept that you mentioned regarding the two supply chain tracks that are out there, how do you expect the changes that are taking place in these two areas to over the next several years? Michael Hetzel: The first group that I mentioned has the shorter horizon that they plan for. They have tendency not only to chase lower cost “ex-works,” but they also tend to “follow the crowd.” I’m going to go out on a limb here, some of your listeners are going to disagree and that’s OK because these are complex issues, but there are companies that have gone to China over the last couple of decades that belong there, and there are companies that went their because it became a fad. Unfortunately, the a lot of companies in the latter group had very poor results. Now some might say the same for Mexico, but no, not really. Nothing has occurred that is nearly the same as the China fad that has emerged since the early nineties. So, these types of companies, in my opinion, are going to keep chasing ghosts. The companies that are viewing things from the perspective of a longer horizon have some excellent opportunities, because, to begin with, they are not going to be reevaluating, or repositioning supply chain assets every time oil prices change, or labor costs change or an exchange rate dip. Unfortunately, since the 80s and the “financialization” of the US economy, we have taken a shorter and shorter term view of these considerations with the publicly traded companies because of the Wall Street gambling operation. Private companies, to their credit, have said, “wait, let’s step back this isn’t all about quarterly earnings.” It’s about “where are we going to be in the next few years,” and “where are we going to be in the next decade?” That’s where private companies can benefit. There are secondary influences, as well. People need to look at, for instance, Mexico and its supply chain. I can’t even keep count anymore. I think that the last time that I looked. Mexico has 44 Free Trade Agreements, or FTA’s. Consequently, if you are manufacturing there, you have the secondary benefit provided that your product has opportunities in any, or all of the countries that are covered under the terms of the FTA relationship. Asia, China, Vietnam and also India, and so forth, have a different positioning with regard to that. Taking a longer term look, and creating a longer horizon, and then incorporating that view with current reality, while making sure that that current reality is continuously updated, will put a company in a better position. Arguably, identifying the current reality for the team, and then getting out of the way, is the number one job of a CEO. I say arguably, but give it some thought. Tecma Group of Companies: Michael, you just spoke about how to best navigate the global supply chain in the long run. I have read some of your material, and there is a phrase that you sometimes use, and let me quote it, “to overlay supply and market structures.” Speaking from the perspective of a global supply chain expert, can you tell us what that term means? Michael Hetzel: Absolutely. Many companies still have silos in their organizational structure. I do some consulting work on the side. I present workshops for companies often, after they hear one of my presentations. I have been at companies at which everyone is sitting around a table, and, when they begin asking questions, I have to say, “Hey wait a minute. When was the last time that you all met?” Often, I will get an answer like, “This is our annual meeting.” I will ask them, “Are you in different buildings?” They’ll answer something to the effect of, “No, supply chain is down that hall. There’s purchasing and logistics. Marketing is down this hall. Sales is over there and engineering is over there.” What often happens is that companies create their supply chains in isolation based upon supply chain metrics. As a result, they create their market structures in isolation as far as segmenting the market. This is how they find opportunities for their products. What I propose, and what I have done with a number of companies, is to create a matrix that allows companies to take a supply chain asset position that allows companies to see how it is related to a market or a potential market. Being able to see things in this way, rather than in isolation, greatly changes the decision-making process within the disciplines that you would now have collaborating. So, overlaying supply chain and market structures method of preventing the existence of isolated islands of supply chain assets, and having close logistics for a major market while isolating a potentially major market from the perspective of logistics. This allows the company to be built with both items in correlation. In this manner, both disciplines are communicating in a dynamic way that allows for a more robust build. This is where I will bring up another piece that I have written quite some years ago, and it continues to be valid. It incorporates a term called “strategic overshoot.” If you Google the term, you’ll find military references. Those are not mine. The commercial version is the one that I am proposing. What this pertains to is the tendency to decide to operate in another country, often China these days, before having made a careful analysis of the actual business and market conditions in order to rationalize the decision. In these cases, the answer to fulfilling defined goals and objectives is often much closer to home. This is an important point, when you consider that, once you overlay the supply chain asset potential and the market potential, you are going to see a different picture. It’s time to tear down the silos. This idea also applies to quality management. When you look at quality, different markets have different expectations. Consequently, to have to reinterpret the outputs of a supply chain asset for these different markets when you have these distances that haven’t been overlayed and consolidated adds a new level of potential failure modes to your entire output structure and performance in the marketplace. This is one of the more complex issues related to your questions. Of course, all of the items in this discussion are really just a very general overview. We could devote entire days to each one of the items. My objective here is for your listeners to take this information, and to give it some thought. Also, to give it a try and to do some direct research. Forget the media. Forget trade media, popular media. Anytime you see something in one of those informational outlets that would relate to your business, make the effort to do some direct research in order to get a true picture and, then, lay it into this overlay in order to get best results. Tecma Group of Companies: That is excellent advice. You are absolutely right. To cover each one of the questions that we are discussing today, from the perspective of a global supply chain specialist, would fill a full day, or even more. Since we are limited to the time of this podcast, however, I would like to ask you one last question: Do you have any specific comments, that fall within the framework of what we just discussed, that would be particularly applicable to our audience’s interest in Mexico? Michael Hetzel: Absolutely. Mexico has been an area of high potential for quite a long time. I have a good comment, and, maybe, a not so good comment there. If you follow the track of China from its opening in the 1970s until the first free trade experiment in Shenzen in the 80s, there they were pursuing foreign direct investment (FDI) very aggressively. This was because they didn’t just need the factory, they needed the road to the factory, they needed the port facilities and so forth. If you look at the early 1990s, however, they made a number of policy revisions that caused their entrepreneurial group of citizens to just explode into a broad range of categories and sizes to allow companies to find things. Mexico, in terms of its policies, has continued to stay focused on FDI, more so than China, which has held it back. However, Mexico and its supply chain, has something that I personally have not seen in China. Mexico offers the opportunity for manufacturers to work with shelter companies. With a Mexican shelter company, nearly any sized company is able to harvest the benefits of Mexico. This includes, importantly, proximity to market and the free trade agreements with forty something countries, if it’s not fifty already. This happens while, at the same time, the manufacturer has full control over its own production processes. The maquiladora industry has a benefit that now extends beyond China. Now, also, Mexico is less expensive in many ways. When it comes to a company that is looking for the best distribution of supply chain assets, as well as having done their homework and their market segmentation, and is overlaying where their market structures are going to be, I think that they are more likely to find that Mexico to be a better key operating country than China, or even the United States. This is even if the United States is their primary market. In the work that I did in manufacturing, Mexico became a major export destination for us as we grew that company. We were also exporting to Asia and to Europe. Part of the reason for all of this had to do with following clients that were building their operations Mexico and, then again, didn’t have the range of input categories available. This continuously changes and grows. The other thing has to do with when you look at oil prices. Some people will say, “Well, now China is cheaper again.” First of all nothing gets more valuable riding on a boat. Think about that for a moment. We give too many ocean cruises to our television sets and not enough to our workforce. Mexico eliminates all of that distance, and all of that time and logistics. It eliminates gap inventory. It eliminates obsolescence risk, and opens doors to mass customization that is really what is increasingly becoming a market demand. For me personally, not just because I am speaking to Tecma, the fact is that Mexico is the place to be. It really has moved forward. If you can’t find it there, you can make it there yourself through a Mexican shelter company, or with your own FDI. It is convenient to this market. It has free trade agreements with other markets. It has tremendous balance and close proximity that facilitates managing quality, engineering and other aspects of the business. Also, we can’t forget language. As far as China goes, there isn’t nearly anything that is analogous to English. It is a different thinking process. However, Spanish and English are not that far apart. We have found that the quality industry that translations that are prepared for the Mexican workforce are easier to do and are much more robust. This is a point that I could also go on about this from the perspective of a global supply chain specialist, as well, but I will just shorten my answer here. If I seem to be overly ebullient about Mexico, there is a good reason. I’d be happy to discuss that with any of your listeners, if they need more detail. Tecma Group of Companies: Michael, that is a great lead in to the last question that I typically ask folks that participate in Tecma Talk podcasts. If somebody wants to get into contact with you to discuss any or all of the points we have gone over, how would they go about doing so? Michael Hetzel: They can always give me a call on my cell phone. The number is 708-710-5935. They also can email me at firstname.lastname@example.org. I would be delighted to hear from anyone. It has been a real pleasure speaking with you today to cover this topic. Tecma Group of Companies: The pleasure has been all ours, Michael. Good luck to you in your future endeavors. The post Tecma Talks with global supply chain specialist, Michael Hetzel appeared first on TECMA » Tecma Talk Podcasts.
20 minutes | Sep 10, 2015
Tecma Talks about the medical device industry supply chain in Tijuana with Ian Monroy
The medical device industry supply chain in Tijuana can accommodate both simple and complex manufacturing. Tecma Group of Companies: Hello and welcome to another installation of Tecma Talk podcast. These, as frequent listeners to these discussions know, are conversations that deal with the topic of manufacturing in Mexico, and issues that are related. Guests are experts that are both internal and external to the Tecma Group of Companies that have expertise in a diversity of areas. Today is no different than any other day in that regard. The individual that we are speaking with today comes to us from outside of the Tecma Group of Companies. His name is Ian Monroy. Ian is an individual that is based in Baja California, Tijuana to be precise. He is well-spoken and well-informed with respect to the supply chain situation and the supplier base that serves the Tijuana and Baja California medical device manufacturing sector. I’d like to welcome you today to Tecma Talk, Ian, and ask that you tell us a little bit about yourself both personally and professionally. Ian Monroy: Thank you for the kind introduction. My name is Ian Monroy. I am a season sourcing and supply chain professional with about eighteen years of experience. I hold a Master’s Degree from CETYS Tijuana. I started off in the very different field of international political studies. Live does have its twists, and I ended up working the area of supply chain of industry. Tecma Group of Companies: Today, our focus is going to be on the medical device industry. You’ve communicated to me that, over the last several years, that you have become very familiar with the supply chain of the medical device industry. Is that a correct interpretation of comments that you have made in our discussions? Ian Monroy: The focus of my comments on the medical device supply chain in Tijuana will be on when I was working for Made in Mexico, that’s a NxStage Medical company out of Boston. NxStage manufactures both the disposable, and the machine, for dialysis therapy. Additionally, we manufactured our own dialysis solution. When I went to college, I wanted to be a doctor, so, in a way, this is the closest that I have been to studying medicine. I became involved with NxStage. We started off with zero medical device industry supplier base in Tijuana. Since all of our vendors were based on the East Coast, we started moving some vendors, or products better yet, to the West Coast to California and to Baja. That is how I became involved with the medical device industry here in Baja California. I started participating in the Tijuana-Baja California Medical Cluster, which is a group of companies that are related to the manufacture of medical devices here in Tijuana and Baja California. I became their supply chain committee coordinator. Tecma Group of Companies: Between the medical device experience and that which you have had with the medical device cluster organization in Tijuana, you have a broad overview of what is there in terms of both the industry and the industry that constitutes the Tijuana medical device industry supply chain. That second point is what we are interested in learning more about today. First, however, it would be good if you could give us an overview of what the industry looks like in terms of its diversity and role in the local manufacturing economy? I’m sure that the listeners would find that information to be interesting. Ian Monroy: The medical device industry has been resident in Baja California and Tijuana for more than twenty-five years. It had its start in the very simple assembly of disposable medical products. Since the beginning, however, the industry has evolved. We have grown at the that has reflected growing demands from American OEMs in terms of increasing complexity in the manufacturing process. We went be on strict assembly and began doing molding, medical device molding, that is. I mean the type of molding that requires a clean tool room and an ISO certification, as well as all the processes that are related to these demands. Additionally, the Tijuana medical device supply chain developed the capability to sterilize the products of the items that were being manufactured locally. Years ago, product was sterilized in the United States, and engineers were not involved in the validation protocols that are required for sterilization operations. Nowadays there are Mexican engineers present in most of the companies that manufacture disposable devices that come into contact with blood. These engineers have the knowledge to establish acceptable protocols, and know how to validate medical device sterilization operations. What I am trying to say is that we started off with rudimentary products, and, over time, the medical device industry supply chain in Tijuana has become stronger in terms of knowledge, resources and processes. We have started to automate processes, as well. Today, the medical device industry supply chain in Tijuana does not only consist only of people on a production line, but also consists of robotic arms and machines that do automated assembly. These new capabilities have made the medical device industry supply chain in Tijuana more robust compared to other markets that do medical device manufacturing in other parts of the world such as Southeast Asia or South America. That is how things have changed over the years. Tecma Group of Companies: That was a good overview of both the evolution of the activities that go on in the medical device industry supply chain in Tijuana, as well as the technology that is used to carry them out. Whatwe want to get at today, very specifically, we want to look at things from the perspective of a company from any part of the world that wants to be an OEM, or become a part of the medical device industry supply chain in Tijuana. If they are looking at Tijuana, what can they expect to find in the region in terms of a manufacturing and supplier base that can help them to achieve their manufacturing goals? Ian Monroy: In the medical device industry supply chain in Tijuana, companies can find extrusion on both sides of the border. There are companies that are doing extrusion for blood lines and other complicated operations. This is being done in a clean room environment. Some of the companies that are here doing this have a solid ten or fifteen years of experience. A good range of molding can be found. This extends from a lower range of 10 or 15 tons to up to 400 tons. These things, as well, are done in a clean room environment. The companies that are engaged in this are using almost all type of resins. In the medical device industry supply chain in Tijuana, there are no restrictions in the types of molding services that are available to those that need them. Medical device molding can be done in a clean room and in a controlled environment. We also have the availability of CNC machining. There are pcb and wire harness manufacturers in the medical device industry supply chain in Tijuana, as well. Previously, I mentioned the increasing complexity of the type of manufacturing for the medical device industry in Tijuana. Increasingly, companies here are involved in the manufacturing of hand held devices. Some of these devices are both hand held and disposable. Now, the increasing complexity and completeness of the medical device industry supply chain in Tijuana has even created an environment in which capital equipment can be manufactured. These items need electronics, machining and molding of parts and wire harnesses. In most cases, the OEMs make only a certain portion of the device, the rest is being sourced here in Tijuana and Baja This is more effective. We now have suppliers in the medical device industry supply chain in Tijuana that can do, as mentioned earlier, molding to meet any requirements, machining, wire harness manufacturing and, even though it is in its beginning stages, micro-molding. Micro-molding is something new. Micro-molding is employed in the manufacture of ear pieces for hearing aids. This is an indication that the Mexican engineers that are running the molds and the machines are now capable of that are setting up a machine that will do micro-molding. This complexity, to me, is an indication as to the degree to which the industry has evolved. We can also do disposable bags, either for IV, or for Uline solutions. Additionally the medical device industry supply chain in Tijuana has plastics thermoforming capabilities. These can be manufactured either in a clean room environment, or under controlled conditions. Almost any type of manufacturing process that is involved in the making of both disposables and capital equipment here in Tijuana. With the three companies that are now here, we are expanding into the area of Pharma. For instance, this includes dialysis solution for related treatment and therapies. What is the medical device industry supply chain in Tijuana is becoming more complete. Tecma Group of Companies: The range and breadth that you have in terms of the market and the availability of suppliers is both very wide and impressive. Often we receive inquiries from companies that have to do with, not only the products that they wish to manufacture, but also are looking for information on the capabilities of available suppliers’. How would listeners of this podcast that may be in such a position contact you directly in order to ask questions about this? Ian Monroy: They can find my profile on LinkedIn. They can also contact my consultancy at email@example.com. My personal email will work, as well. It is firstname.lastname@example.org. The Tecma Group of Companies: Thank you for making yourself available to our listeners. The post Tecma Talks about the medical device industry supply chain in Tijuana with Ian Monroy appeared first on TECMA » Tecma Talk Podcasts.
13 minutes | Aug 19, 2015
Tecma bolsters its Foreign Corrupt Practices Act compliance program
The Tecma Group’s Mark Earley explains how having a strong Foreign Corrupt Practices Act in place enables companies to conduct transactional business in an honest and straightforward manner. Tecma Group of Companies: Hello, and welcome to another installation of Tecma Talk Podcasts. These, as regular listeners know, are discussions with individuals that are internal and external to the Tecma Group of Companies. They are on subjects that have to do with manufacturing in Mexico, and things that are related to that topic. Today, we are with one of our internal experts. His name is Mark Earley. I will let him introduce himself, in a moment, but first I will give a bit of background on what we are going to speak about. We are going to talk about the Foreign Corrupt Practices Act. This discussion contains useful information for any company that is doing business that transcends international boundaries. Mark, please introduce yourself, and speak to the importance of this topic, if you could. Mark Earley: Thank you. I appreciate the opportunity that has been provided me to speak on this very important topic. I am the vice president of accounting within the Tecma Group. I have also been assigned the duties of the roll out of the of the Foreign Corrupt Practices Act, or the FPCA, for Tecma. This includes for, not only our own employees, but also agents and representatives of Tecma that potentially have the ability to corrupt foreign officials. Tecma Group of Companies: It is interesting that you mentioned a few moments ago that the Foreign Corrupt Practices Act is almost thirty years old, so it has been around a while. Can you tell us exactly what the FPCA is? Mark Earley: Sure. This is a US law that was enacted in 1977 to prohibit bribery of foreign officials. There are really two main provisions of the Foreign Corrupt Practices Act. The first is considered the “anti-bribery” portion of the Act, while the other one consists of the accounting provisions. The best way to look at the “anti-bribery” section of the FCPA is to consider that it points out what constitute violations. It prohibits bribery of any foreign official, and in the accounting provisions we are looking at the internal controls that a company employs to ensure that bribes are not paid out to foreign officials. Basically, the provisions included in the accounting section of the Foreign Corrupt Practices Act make it difficult for bribery to take place. Tecma Group of Companies: Why should companies and individuals care about the Foreign Corrupt Practices Act? Mark Earley: It is interesting that the Act has been around for thirty-eight years. If you look at most companies, and how they would go ahead and protect themselves to ensure that employees or agents that represent their organizations were not involved in bribery was mostly through the “code of conduct” that a company would have. That is something that an employee would review and sign upon starting with an employer. Some companies would go through this, or a similar exercise, every year. In the last ten years, we have seen an increase in the enforcement of the provisions of the Foreign Corrupt Practices Act by the Department of Justice (DOJ) and the Securities Exchange Commission (SEC). When we look at the year 2013, for instance, the average fine that was levied for FCPA violations was US $80 million, per occurrence. What we’ve seen, then, is a drastic increase in enforcement levels. We see that both the DOJ and the SEC have hired quite a number of individuals whose sole function is the prosecution of violations of the Foreign Corrupt Practices Act. Tecma Group of Companies: Ignoring the FCPA can be costly? Mark Earley: Yes. One thing that I would like to mention is that both criminal and civil penalties can be associated with violations. This can impact not only the companies, but the individuals involved. Tecma Group of Companies: This is even more reason to pay attention to the statute? Mark Earley: Absolutely. Tecma Group of Companies: There are basic elements to the Foreign Corrupt Practices Act. If you could please provide an overview of what those are, I think that it would be helpful to the listeners to have a sense of them. Mark Earley: In our internal training, we provide internal training not only to our employees, but also to those of our clients. We also offer Foreign Corrupt Practices Act training to representatives, as well as key third parties. For instance, this would include attorneys, or anyone acting on our behalf in a foreign country. When we offer training to them, at a minimum, they must send a signed representation affirming that they are complying with the FCPA, and that they understand the provisions of the Foreign Corrupt Practices Act. I think that the easiest way to understand the FCPA is to examine the five elements that constitute a violation. The first item that is pertinent is that there has to be something of value given. The second important consideration is that the item of value is corruptly given, or offered. Thirdly, that item of value is given directly or indirectly. Fourthly, it is proffered to a prohibited foreign recipient, and the fifth consideration is that the item given has been offered in return for an improper purpose or for an advantage. When we look at the Foreign Corrupt Practices Act, all five of these elements must be present in order for a violation to occur. It is important that companies that look at the FCPA and train their employees in it make sure that they truly understand the significance of these five elements. In our particular training, we go into specific detail as to what each of one of them consists of. Let me give you an example: If you look at the first element, something of value can be defined as a gift, entertainment, meals, travel expenses, hosting of site visits. It can be discounts given on products and/or services. It can include employment, either directly or indirectly. It can also include setting up or providing consulting engagements and job offers. Again, this is what is considered value. It does not necessarily have to be or include cash. These inclusions have been developed over time by the US government in the course of reviewing what are violations or foreign corruption. These are the vehicles that have been identified as the ways in which value has been corruptly provided to foreign officials. Tecma Group of Companies: Because of what you just said, in terms, of the higher incidences of violations and the resources that have recently been dedicated to enforcing the Foreign Corrupt Practices Act, what should companies do to make themselves immune to problems of this sort? Mark Earley: That’s a very good question. What companies need to do is to put a “credible and defensible” program into place to protect themselves against possible violations of the FPCA. The fact that an employee signs a code of conduct is not what is deemed to be credible and defensible. This would not suffice in a court of law as a company’s defense against a violation of the Foreign Corrupt Practices Act. What all companies should do is to, definitely, go out develop an FCPA program as the Tecma Group has. Internal to Tecma what that means is that every employee that gets hired needs to go through the program. This is a training that encompasses the elements of the FCPA, as well as its importance. A communications line has to be set up by which potential violations can be reported to the appropriate company officials. This will enable any employee, or agent, that sees a potential violation of the Foreign Corrupt Practices Act to communicate what problems, or potential problems, exist to organizational authorities. Doing this empowers a company to identify possible or potential FCPA violations and to take action as needed. New employees get “certified” on the training, not only when they first enter into employment, but also on a yearly basis. Doing things in this manner provides a constant and continuous reminder to the employees of the importance of this matter. We provide notifications and updates on the subject internally through emails to our key employees and representatives that explain to them on a regular basis what the importance of the Foreign Corrupt Practice Act is. We explain that their compliance is critical, not only for critical reasons for the company but also to make them aware that both civil and criminal penalties can apply personally to them. Tecma Group of Companies: There is one last question, however, I don’t know if it is a question or just thinking out loud. It seems that one of the secondary effects of being proactive and putting together a FCPA program, as well as having training on a yearly basis might actually be a factor that would make companies less likely to attract people that would violate the statute? If there is such a stress on such a program, then those who may be prone violate the FCPA might be more inclined to seek employment elsewhere? This would be a positive outcome. Mark Earley: You’re correct. A defense from an individual that would bribe a public official might be a claim that he or she did not know about the Foreign Corruption Protection Act, or that whatever was done was in violation of the FCPA. That is a defensible position for the individual. If that defense is used by an employee, then the company is liable for most criminal and civil penalties. If an employee or an agent of a company goes through Foreign Corrupt Practices Act training, and notifications and updates are consistent, he or she does not have ignorance of the law as a valid defense. If a company has a viable program in place that is both credible and defensible, then the employee is civilly and criminally responsible for his or her actions. By virtue of having trained and informed employees, the company has protection in such cases. Tecma Group of Companies: Mark, we just scratched the surface of this topic. You have obviously put a lot of work into putting a program for Tecma. If people that would like to tap into your expertise and email you or give you call with questions on this topic, would you be willing to share your knowledge on this issue? If yes, how can people contact you. Mark Earley: Definitely. They can contact me through the website, and also they can call the Tecma Group’s main telephone number and ask for me. The post Tecma bolsters its Foreign Corrupt Practices Act compliance program appeared first on TECMA » Tecma Talk Podcasts.
24 minutes | Aug 14, 2015
Tecma talks medical device manufacturing in Tijuana with Matt Jordan
Matt Jordan, vice president of operations at Providien’s subcontract operations lends his insights on medical device manufacturing in Tijuana to Tecma Talk podcast listeners. Tecma Group of Companies Hello and welcome to another installment of Tecma Talk Podcasts. Individuals that have frequented our website, and listened to our material before, know that what these recordings are composed of are conversations with experts that are both internal and external to the Tecma Group of Companies on subjects that have to do with manufacturing in Mexico and related topics. Today we are going to concentrate on medical device manufacturing in Tijuana. We have a very seasoned manufacturing executive that represents a company called Providien that is located in Tijuana, and doing business there. His name is Matt Jordan. I will ask him to tell the folks that are listening to this recording a little bit about the company, and about himself. Matt, how are you today? Matt Jordan: Good. Thanks for having me on. Tecma Group of Companies: Matt, please tell us a little bit about Providien and yourself. Matt Jordan: Sure. Providien is a medical device manufacturing company that makes devices in three primary categories: (1) metals; (2) plastics and (3) finished goods contract manufacturing. Finished goods contract manufacturing is the lion’s share of the business. That is what I am responsible for, and that is done all south of the border here in Tijuana, Mexico. We occupy five buildings and have just over one thousand employees. We have three different manufacturing offerings. We do outsourced production lines, production work cells and we do have two focused factories, which are manufacturing products that are dedicated to only one customer. Providien does about $90 million in sales annually and has a total of 1400 hundred employees. We’ve got some ancillary locations in Southern California. For me, my background is split 50/50 in terms of the OEM and the contract manufacturing. I started my career with Medtronic, beginning my work at their ear, nose and throat division which had just won the Shingo Prize for lean manufacturing excellence. I spent a few years on an ex-pat assignment implementing “best practices” for manufacturing across eight facilities in Europe in France, Germany, Switzerland, Ireland and the Netherlands. I came back to the United States and finished up with Medtronic working for surgical navigation and cardiovascular. After that, I moved into the contract manufacturing side and joined a company called ATEK medical, which has since been acquired by another company. I took an ex-pat assignment with them to start medical device manufacturing operations in Costa Rica. We put signs on the doors, turned the lights on and when I left, we had very large manufacturing work cells in place for catheters, perfusion tubing set cannula and tourniquet cuffs. Subsequent to that, I moved into business development. It was important to me to understand how to drive top line growth, and pricing and the financials behind the operation. I was very successful in that area, and was awarded and transferred over US $30 million worth of business. About two years ago, I joined Providien. I’m the vice president of operations and, again, operating the finished good contract manufacturing side of the business, which is south of the border. Tecma Group of Companies: It is clear that you have a diverse background in both geographical and in terms of functions within the industry. Let’s function on the geographic aspect of your experience. You have been in Europe. You’ve been in Central America. Given this, from your perspective, why is medical device manufacturing in Tijuana a choice that should be considered by people that are making decisions for their companies from a strategic perspective? Matt Jordan: Sure. Firstly, I want to say that I love the environment and the people down here in Tijuana. It is a strategic location for medical device manufacturers because of the reduced labor costs, and the stability of the labor force. The labor pool here in Tijuana is a product of migration from all over Mexico. This set of circumstances gives us a favorable supply and demand ratio, and, thus, stable labor rates for medical device manufacturing in Tijuana. That state of affairs applies not only to direct labor, but also to indirect labor. Let me give you an example: When I was in Costa Rica, I was down there during the medical device manufacturing boom. Large OEMs like Boston Scientific and St. Jude expanded, and Volcano set up plants down there. Consequently, the supply of indirect labor couldn’t keep up with the demand. As a result, IDL rates increased significantly almost overnight. So, stable and reduced cost labor is key here when medical device manufacturing in Tijuana. Also, from a historical perspective, manufacturing has been the economic driver here in Tijuana. That is not always the case in some other countries that are still blossoming in terms of manufacturing as in the Dominican Republic, as well as some places in Africa, for instance. Next, it’s about the region and nearshoring. The region is what is called the “Calibaja Mega Region.” You’re looking at an area that consists of San Diego County, Imperial County and the northern part of Baja California. In terms of qualifying the “horsepower” behind this region, you’re looking at over US $215 billion of GDP. That’s billion with a “B.” There is a population in the region of over 6 million people, and, importantly, the infrastructure to support the population and resultant economic activity that it generates. In the Mega Region, there are multiple air, land and sea ports of entry, and, of course, it’s nearshore. We can do medical device manufacturing in Tijuana, Mexico utilizing reduced labor rates, and can have products sterilized and delivered to an OEM on the East Coast within five days. Furthermore, Tijuana is really engaging in an economic partnership with San Diego, and the mayor of San Diego, Mayor Faulkner, has been quoted as say that “the area is not comprised of two cities, but is one region.” The local governments are dedicated and committed to ensuring that the Calibaja Mega Region is an attractive manufacturing location for OEMs. This is particularly so in the medical device industry. Tecma Group of Companies: Again, you’ve been in various places, but let’s concentrate on the differences, or lack thereof, that might exist between what you have experienced in the US, as opposed to what is going on in Mexico. You’re running a medical device manufacturing plant in Mexico today under the auspices of what’s called the “IMMEX Program,” which is more popularly known, in terms of historically used vernacular, as the “maquiladora industry.” What are the differences, if there are any, between running a plant in the US and operating one in Mexico under the maquiladora program? Matt Jordan: For all intents and purposes, there are not any differences. These operations are just as sophisticated as any US manufacturing location. The one guiding principle here is that a maquiladora operates under the guidelines of the NAFTA, the North American Free Trade Agreement. This allows companies in Mexico to import and export without incurring any tariffs or fees. The trick is that if you are going to be importing goods and equipment, you have got to be what is called the “importer of record.” In terms of the facility itself, there is no difference. You have to consider the size of the region, as well as that of Tijuana. Tijuana is the medical device manufacturing hub of North America. It’s important to understand that that includes the United States. Having worked for Medtronic, a lot of times people recognize Minneapolis as being the foremost medical device manufacturing location in North America. The fact is that medical device manufacturing in Tijuana is significantly larger than in Minneapolis. It is also larger than the medical device industry in Boston and Chicago combined. What that means is that we have an industry here that provides sufficient ability for companies to source locally. I have got sterilization thirty minutes away. This is a very strategic, and similar to the United States manufacturing environment. In the plant itself, I have a very. very competent staff. They are all English speaking and demonstrate operational excellence. This is even more so at this manufacturing site, because we are in the contract manufacturing space, therefore our margins are lower. This means that there is less room for error here. Medical device manufacturing in Tijuana employs all the same methodologies. Things are process driven. Lean and Six Sigma are present here. We have Kaizen events every week, morning quality walks, and we are a metric-driven organization just like you would be in the United States. Tecma Group of Companies: What you are saying is that there is essentially no difference between operating a medical device manufacturing in Tijuana operation, and something similar in the United States? Matt Jordan: I am saying that, essentially, there is no difference except for the fact that you are able to utilize and benefit from reduced and stable labor rates. Tecma Group of Companies: That is a big advantage of manufacturing medical devices in Tijuana. Matt Jordan: It is. Additionally, when you use the term “nearshore,” you have to take the concept of “landed cost” into consideration. There are some that can rightfully argue that there are competitive manufacturing labor rates all over the world, especially in places like China and East Asia. Landed cost of Asian manufacturing, however, is starting to get very close to that of US manufacturing. On the other hand, landed costs of medical device manufacturing devices in Tijuana are holding steady, and are significantly lower. When you’re talking about “landed costs,” you’re talking about the addition of import-export fees, as well as freight and logistics. When you’re a mere ten or fifteen minutes south of the border, both these types of costs and those related to lead times simply aren’t there. Tecma Group of Companies: With regard to the geographic location and labor pool, obviously the nearshore strategy that you just brought up is a compelling one as regards total landed cost. There are companies, however, for some reason or other, that like to make their products themselves. There are others that prefer to have a company like Providien do their manufacturing. How would you recommend to companies that are in the mode of making a “make v. buy” decision to go about doing so? Matt Jordan: This certainly could be the basis of a lengthy debate here, but from my perspective it’s a fairly simple proposition to consider. The “make v. buy” analysis hinges on a company’s business direction, as well as a recognition of what a particular company’s competitive edge is. Is it innovation, and generating and developing strong intellectual property (IP), resulting in a robust pipeline of new products? Does competitive advantage lie in the area of operational excellence? If you look at the industry today, and I think that Obamacare has led to some confusion, if your core business is innovation, your default should be buy. I’d put it in these terms, if you had $1 how would you decide to use it? Would you rather spend that dollar to make eighty cents by developing new products, or would you rather spend that same dollar on bricks and mortar and save twenty cents? If your business direction is to save twenty cents, then hire the best manufacturing people in the world and get to work. If your business direction is to be an innovator, and you are looking to use that $1 to make eight cents, then the best route to go is to partner with a company like Providien and let us leverage the expertise and demonstrated operational excellence that we’ve already have been in house for years on your behalf. So, for me, it does go back to a careful consideration of business direction. Tecma Group of Companies: Sure. Your explanation of the “make v. buy” decision process is similar to what we see as a provider of shelter services in Mexico. Obviously, you’re services enable people to fix their focus on innovation. They hand over the production to Providien and that you free them up to spend more money and time on doing just that. In a similar fashion, while you’re company’s focus is manufacturing, the Tecma Group’s offerings free companies up to concentrate on that. This is because that all the things that manufacturers require to have around them in order to make product in Mexico such as payroll service, Mexican customs work, EH&S compliance expertise, as well as a myriad of other things that don’t have anything to do with actually making product are things that we do for our customers. In a sense, we are both outsourcing companies that are working at different levels of involvement. Matt Jordan: Yes, and the value is certainly there. Do you want to be involved in product innovation, or do you want to be spending time doing things like obtaining operating licenses, because the list of operating licenses to begin medical device manufacturing in Tijuana is quite lengthy and do you want to be doing things like managing a quality system? The FDA has developed a heightened awareness, and we’ll talk about this in a minute, on supplier management and EM, as well as a number of other areas. Do you want to worry about the FDA and being compliant, or do you want to concern yourself with developing innovative, new products that fill a robust pipeline? If it is the pipeline that you are concerned about, then my advice is that you leverage an outsourcing partner. Tecma Group of Companies: That makes sense. Again, in a lot of ways we operate, in terms of business, using the same logic. Let’s focus in on a couple of words that you just mentioned: “quality” and “regulatory.” When it comes to medical device manufacturing in Tijuana, what kind of changes, if any, have you seen in those areas? Matt Jordan: Real quick, I think that it is important to mention that there is no difference between an FDA audit down here in Mexico and in the United States. They are virtually the same. Here in Mexico, one area in which I have seen a heightened awareness, however, is on supplier management. When the FDA enters an OEM, they immediately want to understand the system for supplier management of the company, which brings them to us. The FDA comes to see us and audits us and our purchasing controls, as well as things such as how we do our supplier audits, and what our supplier audit scorecards look like. This is because the FDA knows that raw material and the effect of its quality impacts the entire value chain. If your plastics supplier in China is not being managed correctly, for example, although everything you do in your manufacturing process can be perfect, flaws will exist that may result in the production of a harmful product. Supplier management has really been a hot button issue for the FDA as regards medical device manufacturing in Tijuana. One area of heightened FDA interest that is evidencing itself is in the area of environmental monitoring. From a regulatory standpoint, for me, it’s clear. Please understand that we are in the contract manufacturing business, therefore, we do not own IP, but, from a regulatory standpoint, without question it is important to pay attention to import-export. In the past, the Mexican government would pretty much accept a company’s word that it was operating under the NAFTA guidelines. Now more than one’s word is required. You need to be able to demonstrate data that corroborates North American country of origin requirements, and that, in fact, if goods are originating outside of North America, associated duties and tariffs are being paid. In general terms these days, when anything regulatory pops up I immediately think import-export. Tecma Group of Companies: If you have any issues in that area, contact Tecma because we have expertise in that area as well. It appears that I am trying to sell to you here on this podcast. Matt Jordan: I’ll tell you what we did. We partnered with a third-party logistics (3PL) company. We use them for help in the area of import-export, as well as importing and consolidating raw materials. Export shipping is also an area of service that we seek their assistance as the need presents itself. Tecma Group of Companies: The next is a question that I always make sure that is included in a podcast that features someone with vast operational experience in Mexico. Do you have any “if I knew then what I know now” information that you are willing to share with people that may be considering doing medical device manufacturing in Tijuana? Matt Jordan: Yes, one lesson that I have learned from the manufacturers perspective is the fact that I should have been here sooner. This is a wonderful place to work with wonderful people. I love the people and the environment, and they appreciate the work that the manufacturing industry in Tijuana provides them. One of the objectives that we have when we partner with an OEM is to become an operational extension of their organization. We outline certain robust business processes that are customer focused. The people down here certainly adhere to those principles. It has been a wonderful experience for me so far. That’s got to be number one. Number two is, again, the importance of nearshoring. Having worked in both Europe and Central America, I see that being able to have a very short lead time to deliver finished goods, sterilized finished goods at that, is extremely important. I’ve seen some data on total landed manufacturing cost, and, while China has, perhaps, been the leader conversationally, I think that the most competitive nearshore option is going to be found in Tijuana, Mexico. Now, when you are developing a manufacturing strategy, it is important to remember that there is no “silver bullet.” I do think that it is absolutely necessary, however, to consider Tijuana as a place to manufacturer medical devices as well as other goods. The third point that I have learned is the importance and benefit of stable labor rates in terms of being able to project into the future and being able to effectively negotiate contracts with OEMs. Being able to know and accurately forecast what your operating margin is going to be in three to five years’ time is huge. Again, having seen the fluctuation, and, then, the steady increase in Costa Rica, you don’t have that here when doing medical device manufacturing in Tijuana. For me, that is extremely significant. Tecma Group of Companies: That is a big boon for planning purposes for sure. One of the final questions that I would like to ask you has to do with the issue of “quality of life.” I’m going to go out on a limb and guess that you live in San Diego, and go back and forth across the border from where you live to where you work. Can you tell us about that experience, and how you rate it in terms of quality of life considerations? Matt Jordan: I do live in San Diego. I live downtown. I can get to the facility where we are performing medical device manufacturing in Tijuana within thirty minutes. Getting into the country is particularly easy. On the way out, I’m involved in the SENTRI program. This tacks on an extra ten minutes. So, I’m home in forty minutes and its quite easy. I can tell you that we have a large manufacturing presence in Southern California, as well. We have thirty plastics molding injection presses in Carlsbad. I’ve spent a significant amount of time there, and I can tell you that I’d much rather commute down to Tijuana than have to battle north and southbound traffic on I-5. The commute can take north of an hour, and the quality of life aspect of things has been fantastic. Tecma Group of Companies: This is a very important issue for firms that are thinking about doing medical device manufacturing in Tijuana. To close, I would like to mention that often when folks listen to these podcasts they have follow up questions with which they would like to contact participants for answers, advice and counsel. Would you be willing to take questions from listeners, and, if yes, how might they best be able to contact you with them? Matt Jordan: I would be willing to take and answer questions. I believe in having a solid network within the medical device industry, and often reach out to people for advice and direction myself. They best way to contact me is by email at: email@example.com Tecma Group of Companies: Thank you for taking the time to talk with Tecma today Matt. We wish you good luck in all future endeavors. Matt Jordan: Thank you for having me. I wish the same for you. The post Tecma talks medical device manufacturing in Tijuana with Matt Jordan appeared first on TECMA » Tecma Talk Podcasts.
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