CSCMP's Supply Chain Quarterly
October 22, 2018
Forward Thinking

Mexico seen as the best place for low-cost manufacturing

For U.S. companies, Mexico's favorable exchange rate and low-cost materials and transportation make it the most cost-competitive country for manufacturing.

A recent study by the research firm AlixPartners determined that Mexico was the most cost-competitive country for manufacturers in 2009. Mexico received the lowest-cost ranking because of its favorable exchange rate and the fact the country has not been significantly affected by transportation and material costs.

The AlixPartners "U.S. Manufacturing-Outsourcing Index" analyzed a variety of manufactured products and compared the cost to build those items in low-cost countries versus the cost of doing so in the United States. It tracked changes in seven key cost drivers (exchange rates, labor costs, transportation costs, raw-materials costs, inventory costs, capital equipment, and overhead costs and duties) and their combined impact on the total cost for a range of fabricated parts and products by country.

The author of the study, Stephen Maurer, noted that low labor costs were not the overriding factor in determining the optimal country for low-cost sourcing. Even in the United States, he noted, hourly labor usually accounts for only 20 percent of the total cost for a manufactured product. Other factors, such as energy costs, currency-conversion charges, and transportation costs can trump low labor costs in some countries.

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