Moving a Factory to Mexico
Hat tip to Jennifer in Washington state for pointing this article out to me. It’s the tale of an idealistic college grad whose temp job involves gathering data that will help facilitate the move of a factory from New York to Mexico.
Larry Sills, the company’s chairman and CEO, says he decided to relocate the
bulk of the plant’s operations to Reynosa, Mexico, because of reduced demand for
the plant’s main product line (distributor caps and rotors) and competition from
China. He says the company is profitable, but not enough to justify its nearly
dozen factories in the U.S. and overseas.
It’s the typical story of labor costs:
What’s driving relocations like this one, of course, is the gap between the wages paid in the U.S. and elsewhere. While a line worker in a U.S. factory earns an average of about $18 an hour, the equivalent job in Reynosa, Mexico, pays up to $3 an hour, including benefits, says Ralph Biedermann, a partner with Mexico Consulting Group in San Francisco.
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$3 is less than $18. End of story, right? Well, unfortunately, there’s nothing in the article to say if they tried Lean methods — attempting to eliminate waste and costs first. What about the total system costs? What about the extra inventory in the supply chain and the border delays?
The author started asking good questions, especially after learning productivity had gone UP after the Mexico move was announced (you’d expect it to go down if employees were dejected about the news):
If it had gone up, then what were the criteria for sending the factory to Mexico? I saw highly trained, highly experienced people sitting to the right of me. How much would it cost to train workers in Reynosa? How many costly molding devices would be broken? Would this closing really help? I thought about the drawbacks of committing to a strategy that means chasing the lowest labor costs around the world.
Welcome to the real world, kid. Only an experienced businessman would throw away the accumulated skills and experiences of their people, all in the name of saving a few bucks on labor (which is typically only a small part of a product’s total cost, unless it’s very labor intensive, like clothing manufacturing). But even high labor cost industries have examples of companies that have used Lean to compete on other factors, such as delivery and quality.