When contemplating all the issues that surround the start-up of manufacturing operations in Mexico, cost items are at the top of the list. Manufacturing cost reduction considerations motivate companies to investigate and initiate production in low-cost countries. The Mexico manufacturing industry harbors competitive options for any company to become the supplier of choice.
In a competitive marketplace, end users of manufactured products seek the best products at the best prices with efficient on time delivery. In order to set up as the supplier of choice that meets buyers cost and quality criteria, manufacturers must place themselves on firm footing from the beginning of their efforts by considering every single manufacturing cost that they will encounter at various sites across Mexico.
Start-up Costs Associated with Opening a New Manufacturing Facility in Mexico
- Installation costs for air, power, water lines, pits, louvers, stacks, machine floor isolation, water treatment etc.
- Installation cost for equipment—transport and riggers if needed
- The cost of incorporation and possibly a transfer pricing study. This can be avoided if a firm chooses to manufacture using The Offshore Group’s Manufacturing Community services.
- Training time for them to reach the production standard. If Managers are trained in the States, salary, housing, food and lodging costs involved.
- Turnover is a cost as retraining required
- Labor cost projections as well as fringe benefits
- Electrical connection fee. Under the Offshore Group’s manufacturing in Mexico services, if power Is more than 500 KVA transformer for a 35,000 square feet building, then an additional transformer will be required including equipment to hook it up, cabling and electrical panel.
- Extra inventory and carrying costs associated with starting the Mexico operation
- Shipping costs to and from Mexico of equipment, raw materials and parts
- Special tools, hand tools and test equipment. Also hand tools for equipment installation.
- Costs associated with meeting quality standards during Mexico manufacturing startup.
- Scrap costs
- Rework cost
- Travel and entertainment for USA personnel during the training period in Mexico
- Translation of bills of materials, routing and QC procedures for members of the Mexican workforce
- Office equipment - desks, supplies, phones, etc.
- Computers, software, and other IT infrastructure
- Installation costs associated with telephone for office and factory.
Expenditures to be Considered Throughout Your Manufacturing Operation in Mexico
Actual cost for units produced prior to the first good units manufactured in Mexico –this is usually an R&D expense.
All production costs and associated expenses incurred in preparing for and producing the first production units subsequent to good units produced.
The excess over frozen standard cost of purchased raw materials (PPV) and manufactured parts produced during the Mexico manufacturing start-up period, but scheduled for use in production of other than test production units. These are frequently recorded as manufacturing variances.
Note: The frozen standard cost of purchased raw materials and manufactured parts produced during the start-up, but scheduled for use in production of other than test production units, is inventoried and flows to inventory cost of revenue as regular production.
Costs associated with the introduction of new models to the Mexican production facility, features, etc., applicable to current products.
Costs associated with the introduction of replacement products in Mexico, i.e., those product lines that are the result of the normal product evolution.
Perishable tools and production supplies purchased and manufactured.
AII expenditures that meet capitalization criteria.
Expenses normally charged to Research and Development in accordance with the policies covering Research and Development.
Competitive studies and related equipment analysis.