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Assessing Global Supply Chain Operational Readiness: Part II

The following represent 10 key takeaways resulting from the EPIC analysis of the selected nations of North and Central America.

By ·
By ·

Editor’s Note: This is the second installment of two-part feature by Theodore Stank, PhD; Mandyam Srinivasan, PhD; Kenneth Petersen, PhD; and Philippe-Pierre Dornier, PhD

The following represent 10 key takeaways resulting from the EPIC analysis of the selected nations of North and Central America.

1. There is still a strong appeal for the environment afforded by the political, infrastructure, and competence characteristics in the U.S.  The major weaknesses of conducting supply chain operations in the U.S. relate to the costs of land, labor, and capital, as well as the complexity regarding the tax situation for organizations locating there.  Further, the presence of a strong third-party logistics industry in the U.S. will continue to enable global firms to conduct efficient and effective distribution operations to reach the vast American market.

2. There are locations within the U.S. that may provide opportunity for manufacturing sourcing, especially in cases where inventory costs are high and customer markets require high levels of delivery service and customization.  In these cases, organizations should explore the Gulf Coast states of Mississippi, Alabama, Louisiana, and Texas; firms such as Caterpillar, GE, Hyundai, and EADS are locating facilities there.  Other Southern states, particularly Tennessee and South Carolina, have also enjoyed recent success with location of manufacturing facilities.

3. Similar to the U.S., Canada provides a stable, safe, and non-corrupt political environment that supports a strong infrastructure and business competence. Again, the predominant weakness associated with supply chain operations in Canada relates to the costs of doing business.  Although the Canadian market is only a tenth of the size of the U.S. economy, it remains large on the world sphere.  Organizations will continue to locate distribution facilities in Canada to access both the Canadian and northern U.S. markets. In addition, Canada offers these organizations a source for high-end manufacturing and a way to reduce pipeline inventory and transportation costs to Canadian and northern U.S. markets.

4. Due to its significant raw materials deposits, Canada will also increase its position as a prime location for the sourcing of raw materials, particularly energy resources, as the world – and the U.S.– looks for alternative locations for energy supplies.  This decision is supported by both the strong Canadian infrastructure and favorable NAFTA trade regulations.

5. A compelling trend to follow in the near to mid-future is that of the thawing of the North Pole.  Although this trend promises serious negative environmental consequences, Canada may become an attractive location for maritime trade movements between North America and Asia as organizations take advantage of the great circle routes over the North Pole.

6. Mexico provides a compelling economy that is in a growth mode, with its young and growing population, and an infrastructure and business competence that is improving, although it is not yet on par with the industrial world.  However, the violence and corruption associated with the increasing power of the Mexican drug cartels casts a significant uncertainty over the EPIC environment.  Organizations should seek locations for manufacturing that enable them to benefit from the economic cost conditions while minimizing risks, particularly risks emerging from drug violence and corruption.  Prime areas include Tijuana and Baja, California; Zacatecas and Monterrey in North Central Mexico; and Laredo.  The aerospace industry has already recognized this and has established a significant cluster of activity near Monterrey, Mexico.

7. Mexican Pacific ports continue to emerge as an attractive option for inbounding subcomponents from Asian suppliers, using the efficient rail lines that connect those ports with U.S. rail hubs in Dallas and San Diego to re-distribute goods imported from Asia and assembled in Mexican assembly facilities.

8. Costa Rica also presents an attractive mix of EPIC elements that makes it a possible solution for low-skilled mass production and/or service operations.  In combination with its improving politics, infrastructure, and business competence profile, plus the presence of both Pacific and Caribbean/Atlantic ports as well as the Panama Canal providing accessibility to major North and South American markets, Costa Rica has become an interesting option. The electronics industry has established a cluster in Costa Rica that enables firms to provide a hedge against the risk of disruption in supply chains from Chinese suppliers and a “foot in the door” in the event that Chinese labor costs and transportation and pipeline inventory costs render Asian operations less advantageous.

9. The singular presence of the new Panama Canal and the continued development of the logistics and light manufacturing infrastructure in the Colon Free Trade Zone, combined with the favorable trade policies emerging from a new government and passage of new Free Trade Agreements, makes Panama a prime location for supply chain integration, assembly, and distribution operations.  The opening of the expanded canal in 2016 will dramatically alter North/Central American regional supply chain flows, with a significant amount of trade from Asia to the U.S./Canada flowing to Gulf or East Coast ports for further distribution.  In addition, the possibility of serving South American countries, such as Brazil and Argentina as well as Western Europe through Panama, arises with the opening of the new canal.

10. Organizations must build solid relationships with reliable supply chain partners that can help them ensure sensitivity to local cultural norms, policies, and traditions, and provide training to prepare staff for these engagements.  In addition, they should develop programs to identify top local talent and create incentives to retain them.  In particular, knowledge of supply chain management will have to be fostered, as there is a general lack of this skill set in these countries.


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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