Let a Shelter Operation help you manufacture your products in Mexico to your quality specifications and cost constraints

A shelter operation is an established business in Mexico where payroll taxes, compliance documentation, import/export paperwork, transport, hiring and firing is done for you for a fee.

Normally you will pay $4.50 to $5 dollars per employee hour and the shelter will take care of everything from importing your raw materials, processing them through the 'in-bond' system, scheduling production, hiring people, training them, packaging the product, exporting, closing the in-bond, and delivering finished product to your customs broker in the U.S.

To locate a reputable shelter operation contact one of the following:

For the Calexico/Mexicali region - Earl Roberts, President, R.L. Jones Customhouse Brokers, (760) 357-3177 Web: rjones.com, Email earl@rjones.com

For the San Diego/Tijuana region - Alejandra Mier y Teran at the Otay Chamber of Commerce, (619) 661-6111

Or go directly to a well respected shelter: John Riley, VP, VerTek International, Inc. (619) 661-6868.

There are some 600 Maquiladoras in and around Tijuana, Tecate, Ensenada and Mexicali. A large percentage of them are managed by shelter operations. The usual sequence of events is something like this:

You make contact with two or three shelter operations and show them your product, drawings or the like. You give them an idea of your demand per year translated into the number of employees that will be required to do the work. If you can come up with a requirement of ten people within a year, the shelter operator will want to continue the discussion. If less than ten, they will most likely yawn and start talking about the weather.

You will discuss training material... to be translated into Spanish...

Then you will talk about the manufacturing process. Junk tools in the hands of competent operators or up to snuff equipment in well trained hands. Since the cost of labor is so cheap a lot of manufacturers are hesitant to put a lot of money in machines, tools, fixtures and job aids. A BIG MISTAKE!

A very popular idea is for the U.S. manufacturer to suggest that the shelter give them a year's start and at the end of the year the shelter will close out their agreement as they transfer everything to a new company in Mexico, fully owned by the U.S. company. (See the maquiladora case study)

A huge number of major U.S. companies still rely on their shelter operators even though they could save some money by doing it themselves. It's just that the quality, price and delivery is good enough to satisfy their needs and the new risk is simply not justified. So they leave things alone.

The motivation to start your own company would be if you are interested in continuous process improvement. If you want to continuously drive the cost of the manufactured product down even more and more. The shelter's point of view, their motivation, is to have as many people at work as possible since that is what they sell... man hours.

You, as a manufacturer, most likely will be looking for better ways to produce your parts using fewer man-hours as an ongoing strategy.

This is not to say that the same arrangement could not be made with a shelter operation. It's just a matter of recognizing the opportunities, then negotiating a process and pricing fair to all.

Listen well to what the shelter people say. The tendency is for U.S. negotiators to ignore tidbits of information they have not dealt with before. The shelter people may say something like "Make sure your kitting operation at your warehouse puts all nuts in a bag labeled nuts and all measurements should be in the metric system."

Since the U.S. negotiator has never had to put all the nuts in one package... nor put weights in metrics... the information is most likely to pass through one ear and out the other. Which will cause the first shipment of components to be stopped at the customs broker, taken apart, sorted, re-kitted and the work invoiced at time and material rates. Or it will be caught at the border by an able Mexican customs inspector and the whole lot rejected. Just as you are planning to receive the finished product in time to make a critical delivery.

Question everything that sounds out of the ordinary. Don't take anything for granted. Do what the Japanese do when going to a seminar or learning session; blank your mind, make it a blank piece of paper and write down everything you hear for later analysis.

The arrogance of ignorance syndrome is the greatest killer of good deals, profitability and long term relationships that lead to profits. It's really easy to feel smug and have a 'know-it-all' feeling about yourself when you are sitting in a dingy office, sitting on rickety chairs, speaking to somebody who doesn't speak English very well if at all. On the other side of that rickety desk might be the chief customs officer for the area and he will see in your eyes the disdain you have for his office and therefor him and therefor his country. Incredibly, at least 80 of Americans who deal with Mexicans have this syndrome and make no effort to conceal it.

Once a deal has been reached with the shelter operation, make sure every item is delegated to somebody in your organization and that it is followed through. Like any project, success is in the details. For lack of a screw, the bomber failed to fly, and the war was lost.

If all goes well, you will be continuously surprised at the quality, timely delivery, low-cost performance of the supplies coming back to you from your Mexican operation.

Bottom line: Even at minimum wages in California for factory workers, the actual fully burdened labor rates you pay are over $15 an hour. And that's for a 40 hour week. The shelter will give you fully burdened labor rates of around $5 and for a 48 hour work-week.

Union activists are likely to blame this difference on the decline of manufacturing employment. But the fact is that there are not enogh people in California willing to work in a factory at hamburger-flipping wages. And if you were to pay $15 an hour for fully burdened labor, and your competitor is paying $.50 cents an hour in China you can hardly pass up an opportunity to lower your production costs by going south of the border while retaining 95 of your business activities in the U.S.

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