Manufacturing Cost Estimation: Costs of Manufacturing in Mexico

How much does it cost to build a factory in Mexico?

Unless you have the right financial information, determining your Mexico manufacturing strategy is similar to playing a game of chance. Acquiring accurate information about factories in Mexico – such as the current costs of operations and materials and how those costs may change over time – can be challenging for a number of reasons.

Why are Mexico manufacturing costs and wages so difficult to determine?

Reason 1: Many of Mexico's published sources like the national statistics agency Instituto Nacional de Estadística y Geografía (INEGI) provide data that can be two or more years old.  Inflation, foreign exchange, and market dynamics fluctuate with time and can make this manufacturing cost information unreliable for financial projections.

Reason 2: Costs can vary by location, but much of the available data is aggregated on a broad geographical basis. Unskilled wages and benefits, for example, typically vary by neighborhood, and not just by municipality or region.

Reason 3: National differences, such as manufacturing in Mexico vs. USA, can be difficult to estimate for those unfamiliar with factories in Mexico. Cultural, regulatory, and demographic factors can affect the way costs are calculated and the risks businesses face when manufacturing in Mexico.

Where do I turn for reliable financial data on manufacturing costs and wages in Mexico?

Tetakawi advisers support more than 75 foreign companies currently operating in Mexico and can provide you with the tools to accurately estimate the costs. We provide a backbone for financial comparison, risk analysis, and pro forma budgets using proprietary cost modeling software, which compiles and interprets:

• Daily statistics from companies employing more than 24,000 people
• A wide range of industries, covering multiple locations throughout Mexico
• Real-time data on wages, benefits, salaries, utilities, logistics, expenses and more
• Surveys, published data, and field studies from real operations
• Your unique inputs and raw material costs

Working with a trusted advisor can make the cost estimation process easier. Does your organization need to:

• Make a go/no-go strategic decision on Mexico manufacturing?
• Prepare a detailed cost budget for Mexico?
• Compare manufacturing costs in different global locations?
• Understand more about cost factors for manufacturing in Mexico?
• Provide pricing for products manufactured in Mexico?
• Prepare a business plan for Mexican investment?
• Implement a tool that provides cost analysis for Mexico manufacturing?

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How can Tetakawi help you estimate your costs in Mexico?

Tetakawi can guide your manufacturing team through a 4-hour exercise that explains the key cost factors in Mexico, teaches you common pitfalls to avoid, and gives you access to our proprietary cost modeling software. The manufacturing costs course also guides your team through a sample cost estimation using your input data, so that you leave with a completed cost forecast and the tools to create new scenarios on demand.

How can businesses preempt changes to the cost of manufacturing in Mexico?

A professional manufacturing cost estimation is vital for manufacturers, not solely to understand what products would cost to produce in the current market climate, but to understand how changes to manufacturing techniques, quality control processes, or factory standards may influence pricing going forward.

Before launching a large-scale relocation project or spending weeks sourcing manufacturing depots, logistics partners, and local materials, you need confidence that long term, the decisions you make now will be sustainable and profitable. Businesses have long outsourced manufacturing to more cost-effective countries, conventionally the Far East. Still, Mexico now presents attractive low comparative production costs and has equally competitive pricing for raw materials, inventory and transport, and duties and taxes.

Understanding the potential for future adjustments to price estimators in advance ensures you can make data driven decisions based on detailed on-the-ground knowledge. Whether that means you lean towards Mexico as the optimal manufacturing location or decide on an alternative, Tetakawi provides in-depth insights to ensure you have total oversight of the costs involved.

 

What do I need to be able to draw up a forecast manufacturing cost budget? 

Manufacturing cost estimating involves creating a detailed budget drawing on our expertise to analyze the multiple moving parts that feed into your overheads and production costs per item, batch, or consignment. 

Our local manufacturing cost experts consult on your plans, requirements, regulatory needs, and timescales and use that to form a project plan to calculate complex estimates to help you make informed judgments about the best options.

For example, we examine specific manufacturing industries, the availability of the necessary manufacturing components, and each overhead you need to calculate, such as direct labor cost, transport, direct material costs, operating costs, energy prices, and other utilities. An accurate manufacturing cost makes it significantly easier to select the optimal location for your manufacturing services, decide between regions within Mexico, or present a strong business case to support your intended actions.

How accurate should cost estimates be to justify moving manufacturing overseas?

Even well-considered manufacturing decisions inherently contain an element of uncertainty because changes to political environments, such as duty or taxation reforms, can make one manufacturing location more attractive than another. However, if you are compiling a go versus no-go methodology, your cost bases must be as clear as possible and incorporate what-if scenario analysis to stress-test the costs your modeling is based on. Performing an accurate manufacturing cost calculation is essential when making business decisions.

Tetakawi has extensive knowledge about the cost factors that affect your calculation metrics. You can work with our estimator assets and resources to unpick those fluctuating costs that may be relevant. We collate daily statistics showing real-time cost data, average wages, and expenses and can extrapolate trends or trajectories to forecast potential manufacturing cost changes and provide accurate tools for estimating manufacturing costs.

Our advanced four-hour cost analysis acts as a crash course in Mexico manufacturing opportunities, explaining the potential downfalls and appropriate risk mitigation measures. We also run through some of those core cost factors you need to be aware of and give you access to our unique cost modeling software to create precise estimates, future projections, and a total manufacturing cost budget.

 

Why is the average manufacturing cost in Mexico low?

 

Thousands of international businesses take advantage of lower average manufacturing cost prices in Mexico, resolving issues they face in other production hubs, such as material scarcity, unreliable logistics, and unstable labor markets.

Particularly where the margin on each product is slim, even a nominal cost saving can be valuable and make a quantifiable difference to your bottom line. Choosing to locate your production in a region with widely available machining tools, dependable transport services, and where the local manufacturing sector has a strong knowledge base of related products can be a tactical move.

For example, if you manufacture products with specific materials or where specialist machining or a certain die is essential, it may be very difficult to achieve a viable cost basis where you need to invest heavily in infrastructure or custom-built production machines to fit your business processes.

The considerable appetite within the global business community for Mexican manufacturing services means that many company leaders find that they can make substantial savings, even when using consistent production methods already deployed elsewhere. However, the assumption that lower average labor costs are the only driver behind efficient manufacturing is incorrect.

Mexico has a highly developed manufacturing industry and is part of the Trans-Pacific Partnership free trade agreement. It is also a signatory to the US/Mexico/Canada Agreement (USMCA). This status provides excellent assurances that most goods, materials, and services will benefit from duty-free treatments.

Partnerships now apply to fifty-four nations worldwide, offering premium quality manufacturing, lower overhead costs, and easy access to materials. The Mexican government has been developing production networks and logistical pathways across the world for over twenty years, and this has cemented its position as one of the most cost-effective places to design and manufacture products.

 

What manufacturing cost variables influence Mexican production facilities?

 

One of the key reasons we recommend a bespoke cost estimation service is that the manufacturing cost for your products will be subject to several influences. Where manufacturing consultants rely on general or country-wide manufacturing cost data, this will only reflect the real-world environment in some locations and is not necessarily reliable.

Factors we consider when calculating exact costs to build production facilities, install machining, or source suitable factories in Mexico include:

• Local direct labor costs include production managers, agents, and brokers
• The availability of skills required to produce your materials and products
• Material costs and stability of raw component pricing
• The complexity of your logistics and anticipated costs

Our manufacturing cost analysis tool determines those variables most relevant to your company, allowing us to adapt the design of your manufacturing plan or recommend suitable solutions to ensure that, if you decide to outsource your manufacturing processes in Mexico, you have all the information at your fingertips to make astute future-proof decisions for your business.

Please get in touch for further information about accessing our data assets or proprietary cost modeling tool, and uncover essential guidance to implement a secure manufacturing future for your company.