The Tecma Group of Companies EVP and CFO, Mark Earley, discusses the “ins” and “outs” of using business enterprise systems in Mexico.

 

 

Tecma Group of Companies:

Hello and welcome to another installation of Tecma Talk podcasts. These sessions are based upon information that has to do with manufacturing in Mexico, and related topics. For those of you who have never tuned into one of these podcasts before, we typically have two sources of information for them: First of all, we do podcasts with experts that are external to the Tecma Group of Companies, and we do other topics that are presented and explained by people who are with the Tecma Group. They are internal experts. Today we are happy to have one of the latter with us. Mark Earley is going to speak with us on the topic of using business enterprise systems in Mexico. How are you today, Mark?

Mark Earley:

I appreciate the opportunity to speak on this important subject.

Tecma Group of Companies:

Mark, in your position as the CFO of the company, as well as a vice president, what kind of experience do you have with business enterprise systems in Mexico?

Mark Earley:

In my thirty years of working in Mexico, I have worked with companies that have used business enterprise systems extensively. They’ve used both global systems, such as SAP and Oracle, and country specific systems utilized for handling all the nuances of operating in Mexico in terms of running a maquiladora operation.

Tecma Group of Companies:

That leads one to believe is that if you are a business that is thinking about setting up shop in Mexico, you can make a choice between using a global version, or a country specific version of a business enterprise systems in Mexico. What do companies do normally? Do they go with the country specific, or do they go with a global system? What’s your experience and your observations with respect to that question?

Mark Earley:

When companies have extensive international experience, they normally utilize their existing business enterprise systems, and their existing models from the perspective of MRP for accounting into the book and for tax purposes, and for human resource modules. They will go ahead and use their global systems and then set up the entity and utilize the global system, and specific modules for country. When you have medium and smaller sized companies, they will tend to utilize the business enterprise system that they currently have to run their U.S. operation, and then they will incorporate a business enterprise system in Mexico to use there. This is a much quicker set up, and it is very cost-effective.

Tecma Group of Companies:

When you look at the two choices that exist, when using an existing business enterprise system in Mexico or one that is country specific for Mexico and non-MRP purposes?

Mark Earley:

From an MRP standpoint, you’re going to use your current business enterprise system in setting up your Mexican operation as another location within that entity. You may set up some “in transit” buckets in order to move product to and from the Mexican entity. Now, looking at things from the perspective of an accounting module, the true benefits of utilizing a global system is that you arefully integrated, and able to take the numbers and information that you have is readily available globally. This is going to take a lot of time, effort and resources, including money to put in place. It will require licensed third-party experts to from companies like Oracle or SAP to do that. A lot of time those advantages are not a one hundred percent solution for Mexico in country. Whereas a local, business enterprise system in Mexico that is country specific is, in fact, one hundred percent dedicated and one hundred percent up-to-date for current laws and practices in
country. It is very cost-effective to set this up. The disadvantage, however, is that a lot of times this is an option that is not readily available to everybody. Also there will be a need to
create interfaces between a country specific and global business enterprise system in order to pull information from one to the other.

Tecma Group of Companies:

Can you explain to the listeners in little bit more detailed way how this differs from setting up an operation “in-country” for MRP purposes?

Mark Earley:

The main difference is that, when you are looking at sending product, let’s say that you have an operation that you are setting up in the U.S. within your U.S. company, usually your supply base is sending product directly into your operations facility. That product is typically put into an “in-transit” bucket to be shipped back to corporate headquarters. So, you have the operations in an in-transit bucket, and then to another location. When you take a look at a foreign operation, you will be receiving those products at a crossdock operation in the U.S. on the border. You may have product that comes from a supply base, or that or that comes from another operation in the U.S. that goes to a crossdock location. That crossdock location may be one that you manage, or it could be third-party. At that point, there is an in-transit, known as drayage, to move the product from the crossdock operations in the U.S. to your operations in Mexico. So, instead of a normal situation from going from a location or the supply base in-transit to your operations, you must add two extra steps. First, there is temporary warehousing at a crossdock in the U.S., and a
drayage across to the Mexican operation. When product is shipped out of Mexico, you have the drayage to the crossdock operations in the U.S., and then the shipment, usually to your client base.

Tecma Group of Companies:

In your vast experience, have you seen any differences with regard to preferences in choosing business enterprise systems in Mexico?

Mark Earley:

Yes. I think that before a decision is made as whether or not to use an overall corporate business enterprise system in Mexico, the first thing that has to be done is to make sure that you can’t find a provider that has solutions that are specifically tailored for use in Mexico. What you do not want to have occur is to utilize a system that has been modified incorrectly. In once case a company unsuccessfully tried to modify a U.S. system for HR to accommodate a Mexican environment. There is night and day between the requirements in each location. If your business enterprise system does not have a solution for human resources applications in Mexico, or for accounting or payroll, I would highly recommend that companies go with a local business enterprise system with the appropriate interfaces build in to a global system. This will allow everyone within the corporation to have access. If you have a provider of the business enterprise systems in Mexico does have a local module, and you have a need for speed and to be able to access information quickly, and need to do a close and convert information into U.S. currency to present your numbers, then my recommendation is to use the global system. Again, where I have experienced and seen is that large, multinational companies that have very strong global business enterprise systems will utilize their system in Mexico. Smaller, or intermediate sized companies, will go ahead and use country specific business enterprises systems in Mexico that they can get up quickly. They will either
have separate access, or develop interfaces to interact with their global business enterprise system.

Tecma Group of Companies:

You have provided the listeners a lot of good information on this topic from a very experienced perspective, and have pointed out a lot of things to consider. When setting up Mexican operations, do you have any other key points that you believe that are ones that folks that are involved in setting up business enterprise operations should keep in mind?

Mark Earley:

Number one is that, when you are consulting with your business enterprise systems provider, is to ask for information on existing clients that are using the system in Mexico. Check references and inquire about the ease with which they were able to set up business enterprise systems in Mexico. Make sure that the solutions for the accounting and the human resource systems were they definitely country specific, or were they country modified? Were they taken from the U.S. and then modified for that entity? Also, if one is getting a business enterprise system that is specific to Mexico, get one that is designed to be used by maquiladora operations. In a maquiladora situation you are currently selling from the U.S. entity to the Mexican entity under the new Tax Reform. If there is an advanced pricing arrangement, you can continue to use your sales module on your global system, and the system is really being used to record costs, purchase orders, and so forth. They also record everything from the HR side such as that related to bringing people on board and payroll. You can also use that system to convert over to U.S. dollars, and then incorporate that into your business enterprise system.

I think that of first and foremost importance is, that if you are thinking of using your business enterprise system that is global speak to users to get references. If you are looking at country specific solutions, also get references, and call them. By talking to users you can also find out about ease of implementation and of monthly maintenance.

Tecma Group of Companies:

Mark, there is a lot of good advice there. I know from experience that you are pretty forthcoming and willing to help by answering questions for people as they have them. In addition to offering Mexico shelter services, the Tecma Group does some consulting, as well. In the event that someone who has listened to this podcast has questions, how might they contact you with them?

Mark Earley:

It is probably easiest that people with questions contact me through our webpage at tecma.com. Also, they can email me directly at mark@tecma.com. I would be glad to go over any issues listeners might have regarding the setting up of business enterprise systems in Mexico.

Tecma Group of Companies:

Thank you for joining us today, Mark.

Mark Earley:

It has been a pleasure.