Packaging in Mexico: Supply Chain Trend Decreases Costs and Increases Profit

Published On: October 2, 2012

Packaging in Mexico is a current trend in supply chain management, which allows businesses to circumvent trade taxes and utilize the North American Free Trade Agreement (NAFTA) to its fullest. As a result, operations are much more efficient, and production is much more flexible. Not only is production better able to respond to changing market conditions, but also cost savings are a value-added benefit, which helps company’s improve their bottom line. A discussion of this common-sense trend follows.

Most retail trade works by purchasing inventory from wholesalers, who have purchased goods from suppliers, which are then marked up and sold to the final consumer so retailers make a profit. In order for businesses to maximize net profit, goods are often purchased at the lowest price possible. Ordinarily, in the case of electronics accessories that are imported from China for example, company’s purchase these goods already packaged, which are subjected to taxes, ship them at additional costs, hold them in inventory, and value them until sold.

Using an electronic accessories example, retail packaging in Mexico allows businesses to ship goods unpacked in bulk from the company, in this case China, at a lower rate and have a retail packaging facility in Mexico to be later distributed in the United States. Shipping costs are decreased due to Mexico’s proximity to the United States. Flexible production and decreased costs are just some of the advantages of packaging in Mexico, but let’s consider a list of other value-added benefits:

Delayed payment of duties
Duty-free packaging and packaging labor
Less inventory on hand
Specialized shipments are easier
Shorter lead times

Goods shipped from overseas come into Mexico duty-free, thanks to NAFTA. Packaging materials provided by NAFTA countries are not taxed. Because retail operations are not involved in packaging, distributers hold their inventory on hand in Mexico before being shipped for retail or even to the final customer directly. It depends on the company’s operation system and how the company chooses to distribute the finished product but in the end, its Mexico facility can function as an inventory warehouse and account for just-in-time delivery instead of waiting for a shipment overseas.

Responding to market demands or making specialized shipments is easier because of Mexico’s proximity to the U.S. The process is quicker; creating shorter lead times and more satisfied customers. Retail packaging in Mexico allows companies to streamline production, which affects profit margins and total overhead costs. With these positive effects on a company’s financial statements, it is easy to see why packaging in Mexico may not only be a trend, but here to stay.

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