Solid Supplier Development = Solid Nearshoring

Luis Carlos Ramírez

Former President | Chihuahua Aerospace Cluster

The new opportunities for doing business in America — specifically, nearshoring — require the restructuring of the supply chain built in the past, and the development of a more logical, practical and economical chain. This collaboration certainly goes way beyond what has been done so far. The need is clear: how to promote the integration of the country’s Tier 3 and 4 within the aerospace industry? To succeed, we must develop a completely different approach to all the elements of the equation.

First, the potential suppliers will have the opportunity to gain experience in a world-class supply system, and to develop capabilities, certifications, business models and technology based on the demand they face. Understanding all of this is far from easy, or risk- free. I am convinced the first stage is to develop the mindset for the journey, and to understand that the “big wheel” of the aerospace business in which they are enrolling their business turns very slowly. Once in the industry, the investment return takes more time but the possibility of better contracts, and continuity, is considerable. Also, once you are in, other potential buyers consider you right away and the competitor’s risk is as hard as your own developed capacity and experience allows it. Therefore, the name of the game is to think for the long term.

Here is what is most needed: mindset, preparation, training to the existing levels of the organization, documentation that helps with today’s operations and which provide the basis for future growth, some investment, certainly, and good communication skills. It is also necessary to create synergies and uncover what can be done for and what is needed by potential customers in order to develop a shared strategy of “supplier development.”

Second, potential customers: these are the OEMs, Tier 1 and Tier 2 elements of the aerospace supply chain. These elements, I believe, should also rethink, or remodel, their processes according to the circumstances of today. The supply base requires hands-on participation, where these players can be guided with a continuous program that allows the learning process to flow, and finally develops the level of industry required to support the sector’s needs. They need to train on the certification elements, negotiate economies of scale and prices with the certification bodies for the suppliers in the process.

Financially, there is also an opportunity to help companies by providing international interest rates on loans since the local rates would represent 12-16% on top of prices if financed even by the usual banks. This is a necessary burden to keep suppliers operational.

Another topic of discussion are material prices. Small vendors logically have little leverage to negotiate prices, deliveries and attention from raw material suppliers. Economies of scale affect the final price on products where raw materials represent a very significant portion of the total costs of manufacturing; this leads to a non-competitive position. The proposal is to follow best practices like Boeing does on metal products, where vendors can get metal materials on a base price given to them directly.

Third, and a less considered factor, is the government. Regulations, laws and conditions that facilitate the process during the supplier’s development and during the commercial relationship is extremely important.