Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How a Buyer Used Nearshoring to Cut Lead Times 60 Percent
Transcript
- Lucas: You know how we usually talk about sourcing decisions that involve software tools, contract terms, supplier scorecards — the kind of thing you can implement from behind a desk. Luna: Right. This one is different. Lucas: This is about putting a pin in a map. Episode 100, and we are going to talk about geography as a procurement lever. Specifically nearshoring — not the macro trend, but one buyer who moved a chunk of production from overseas to Mexico and cut lead times by 60 percent. Luna: Before we dive in — and I know we say this rarely — if this conversation has ever moved your work forward in some small way, today feels like a good day to mention that listener support is what keeps this show ad-free. It's buy me a coffee dot com slash fexingo. Lucas: Yeah. Small gesture, big difference for us. So — this buyer. Mid-sized electronics manufacturer, about 300 million in revenue. They make industrial sensors and control modules. Their typical order cycle used to be twelve weeks from order placement to dock receipt. Twelve weeks. Luna: And that was from a contract manufacturer in Shenzhen. Reliable, good quality, but the ocean freight and customs buffer ate up almost half that time. Lucas: Exactly. So the procurement director — her name is Marta — looked at the lead time breakdown. Production itself was only about four weeks. The rest was transit and buffer. And they were carrying six to eight weeks of safety stock just to cover variability. Luna: That's a lot of working capital tied up in inventory. Lucas: Huge amount. So Marta ran a total cost of ownership model comparing their current Asia supplier against a potential partner in Monterrey, Mexico. The Mexico supplier's unit price was about 12 percent higher. But when she factored in freight, duty, inventory carrying cost, and the cost of expedited shipments — which they did about once a month — the total landed cost was within 3 percent. Luna: Three percent. So basically a wash on cost, but the lead time drops from twelve weeks to under five. Lucas: Less than five weeks. Production in Mexico took about the same four weeks, but truck freight from Monterrey to their warehouse in Texas was just three days. No container ships, no customs delays, no canal backups. Luna: What about quality? That's usually the worry with a new supplier. Lucas: It was a risk. The Mexico supplier was smaller, less automated. Marta's team spent two months on a supplier development program — they sent their own quality engineer to Monterrey for three weeks to help the supplier set up inline testing and a visual inspection station. The supplier's initial defect rate was around 800 parts per million. After the program, it dropped to 150. That's better than the Asia supplier's 200. Luna: So they actually improved quality in the process. Lucas: They did. And the supplier appreciated the investment. It built loyalty. Now — the trade-off. Labor is more expensive in Mexico than in Shenzhen. The Mexico plant's hourly labor cost is about 4.50 versus 2.80 in China. But Marta's model showed that labor is only about 8 percent of the total cost for this product category. The logistics savings more than made up the difference. Luna: So the geography shift actually reduced total cost when you account for the soft savings. Lucas: Right. And there's another benefit: time to market. They introduced a new sensor variant last year. From design freeze to first shipment — nine weeks. With the Asia supplier, that would have been at least sixteen. That speed lets them capture more early adopter revenue. Luna: I wonder how replicable this is. Not every product category has such a favorable labor cost difference. Lucas: Good point. Marta's product is mid-complexity — not super labor-intensive, but not fully automated either. For something like textiles or footwear, where labor is 30 percent or more of cost, the math flips. But for electronics assemblies, medical devices, automotive parts — the labor share is often low enough that nearshoring can work. Luna: What was the hardest part of the transition for Marta? Lucas: She said it was the supplier's maturity. The Mexico supplier had the equipment but not the process discipline. Things like traceability documentation, first-article inspection protocols, corrective action response time. They had to build those systems from scratch. But she viewed it as an investment in the supply base rather than just a sourcing switch. Luna: So it's not just 'find a supplier in Mexico' — it's 'find a supplier and then develop them.' Lucas: Exactly. And the payoff: after eighteen months, the supplier's OTD — on-time delivery — hit 99.2 percent. The Asia supplier was at 97.5. And inventory turns went from 3.8 to 7.1. That's a direct working capital improvement. Luna: Did they move all production, or just part of it? Lucas: Just a portion. Marta kept about 40 percent of volume in Asia for their high-runner products where tooling was already paid off. The nearshored production focused on newer products and any customer orders with tight delivery windows. It's a dual-sourcing model, really. Luna: That makes sense — don't put all eggs in one basket, even if the basket is closer. Lucas: Right. And interestingly, the Asia supplier actually improved their own lead times after the split. Competition works. So the net effect was a more resilient supply chain overall. Luna: What about political risk? Mexico has its own challenges — security, regulatory changes, infrastructure issues. Lucas: Marta factored that in. She sourced from a supplier in a well-established industrial park with its own security and backup power. She also structured the contract with force majeure clauses tied to specific risks. But the reality is, every sourcing location has risk. The question is whether you understand it and can mitigate it. Luna: And truck freight across the border is easier to manage than a container ship through the Panama Canal. Lucas: Exactly. Especially after the drought restrictions last year. So the takeaway from Marta's case: nearshoring isn't about patriotism or slogans. It's a cost and lead time calculation. And for a lot of mid-complexity manufacturing, the numbers can work if you're willing to invest in supplier development. Luna: And if you look at total landed cost, not just unit price. Lucas: That's the lesson every buyer should take. Geography is a variable you can optimize, just like payment terms or quality standards. It's not a binary decision between 'all Asia' or 'all Mexico.' It's a portfolio choice. Luna: A hundred episodes in, and we're still finding new levers to pull. Lucas: That's the beauty of procurement. There's always another angle. Thanks for listening — we'll be back tomorrow with another one.