A Look Into the Future
A Snapshot of Some of the Most Pressing Supply Chain Challenges Facing Mexican Companies
While leading Mexican companies have developed successful strategies for overcoming historic and well-recognized supply chain challenges such as the country's sprawling geographic footprint, its large number of small retail outlets and its often inaccessible roads, recent legislation is creating new supply chain challenges. For instance, the passage of an 8 percent tax on sugary soft drinks and high-calorie junk foods — which was approved by the Mexican Senate to help mitigate the national health problems associated with Mexico's high rate of obesity — will place new pressures on manufacturers, retailers and distributors to keep their margins as slim as possible.
Even in the face of these and other challenges, the future for Mexico is incredibly positive — and with good reason. For the last 10 to 15 years, Mexico has enjoyed political stability and solid economic growth. In some industries, particularly the auto industry, Mexico is increasingly embraced by global companies that are rethinking their offshore Asian sourcing strategies in light of rising transportation costs, natural disasters and other risk factors. As a near-shore sourcing alternative, Mexico has much to offer North American and European companies, with its close proximity, liberal trade policies, reputation for high-quality products and attractive labor costs.
With so many challenges and opportunities facing supply chain practitioners in Mexico, JDA Software commissioned a survey of more than 200 Mexican supply chain professionals to gain insight into their chief concerns as they look toward the future.
Top Priorities for Mexican Businesses in 2014
Given Mexico's slow adoption of technology in the past, it's not surprising that 42 percent of survey respondents named “keeping pace with technology advancements” as their number-one business challenge in 2014. Other significant areas of focus are collaboration with trading partners (cited by 20 percent) and overall cost control (16 percent).
One fact was clear: improving supply chain performance is a key strategic initiative as executives look toward the future. Fifty-four percent of respondents cited supply chain management as a top priority on their company's overall business agenda, while another 33 percent called it a high priority. When asked to name their three primary supply chain challenges for 2014, these were the top issues participants cited:
Inventory Optimization: A Critical Challenge
While companies in Mexico are much more sophisticated at forecasting today, they still struggle to distribute inventory strategically in order to meet that demand most profitability. Due to Mexico's huge geographic footprint, most businesses operate multiple manufacturing facilities and store products in many regional warehouses.
Consumer products manufacturers and distributors serve a customer base that ranges from large megastores in urban areas to hundreds of small mom-and-pop outlets that serve remote communities. When you add the poor conditions of Mexico's roads, the perishable nature of many food products, promotions and increased introduction of new products, the result is significant supply chain complexity.
While the majority of Mexican companies are managing that complexity by over-investing in inventory, this is a strategy that supply chain executives cannot support in the future. Mexican consumers, like those in the rest of the world, are becoming more price-aware and increasingly driven by promotions. Their acceptance of e-commerce is also growing, which makes demand much more volatile. Taken together, these factors mean that already-thin profit margins are growing slimmer and slimmer.
Companies recognize that distributing large amounts of inventory across their supply chains is no longer a feasible strategy as they seek tighter cost control. When asked, “Which of the following do you consider to be the best indicator of excellence in supply chain management?” the top answer was “inventory rotation,” with 34 percent of respondents naming this as their ultimate measure of performance.
S&OP Is Also Key
The second most popular answer to this query was “matching plans to actual performance,” with 27 percent of participants citing this as a key performance metric. This is a huge concern for many companies as they strive to match forecast accuracy with tight execution across all of their production and distribution assets.
Companies realize the need to integrate planning and execution much more tightly across the end-to-end supply chain. The recent growth of the automotive industry in Mexico has demonstrated that Mexican companies can play a vital role in the global economy. To capitalize on this opportunity, the country's executives recognize that they need advanced software that increases visibility and synchronization across the entire demand-and-supply network, matching plan to performance as accurately as possible at every stage.
Warehousing and Transportation: Two Cost Centers
It's not surprising that warehouse and transportation management ranked high on respondents' lists of supply chain priorities. In warehouses, product perishability and shrinkage are the two primary challenges that Mexican companies need to confront to maximize their profitability.
In the transportation arena, businesses need to figure out the most cost-effective ways to deliver products in a timely manner to both geographically scattered domestic customers, as well as a growing roster of foreign customers. It is important to balance service to megastores with smaller customers in remote areas, always maximizing the profitability of the “last mile” of their complex supply chains.
Again, the real challenge in both transportation and warehousing is to maximize the return on the ambitious investments Mexican companies have made in physical infrastructure. Their new facilities and fleets must be optimized via equally up-to-date supply chain tools and processes.
Rapid Time to Value via Cloud Strategies
In their effort to leverage the latest supply chain technologies, more and more Mexican companies are turning toward a cloud approach, in which their hardware and software resources are hosted remotely. Twenty-nine percent of survey respondents reported that they are already deploying technology solutions in the cloud. Another 39 percent said it is highly likely that they will employ a cloud approach in 2014.
Cloud deployments make good business sense for Mexican companies for a variety of reasons. First, implementing advanced solutions via the cloud means a faster implementation and a faster time to value. This strategy will help businesses in Mexico catch up since they have been lagging in their technology investments historically.
Second, a cloud approach will help many companies maximize their profit margins as they struggle to deal with new taxes, growing online competition and other threats to the bottom line. By avoiding the upfront costs associated with a new internal IT infrastructure and an increased head count, they can enjoy improved cash flow — while still realizing all of the benefits that new supply chain technologies can deliver.
Good Reasons for Optimism
Mexico is enjoying a period of economic growth and political stability that is unprecedented in its recent history. Based on these positive trends, 60 percent of survey participants said that they plan to increase their investments in supply chain management solutions in 2014. As companies in Mexico gain a stronger technology foothold, we can expect to see their operational and financial results improve dramatically — setting the stage for continued economic growth. It's a future that all of us with a stake in Mexico can be genuinely excited about.
About the Author
Antonio Boccalandro is JDA Software's group vice president, Latin America. He has more than 13 years of supply chain experience and is responsible for leading customer engagements in Latin America.