Equipping a Plant in Latin America: How High-Tech Does It Need to Be?

Strategies for equipping apparel operations in Latin America are gradually changing as the region's customer base becomes more focused on quick turnaround, information technology and quality.

Bobbin recently asked two industry executives who are entrenched in the Latin American apparel manufacturing industry -- manufacturer Alejandro Faes and consultant Lisandro Sagastume -- to discuss trends in capital investments and manufacturing techniques. Here's what they had to say:

Investment in Machinery & Technology

Bobbin: What are the most significant technology trends driving the Mexican and Latin American apparel manufacturing industries?

Sagastume: The use of computer-controlled cutting machines and the use of semiautomatic and automatic sewing machines for quicker production, labor savings and quality control.

Bobbin: Looking back at Mexico's pre-NAFTA apparel industry, can you describe a typical strategy for equipping a plant? For instance, did most companies begin with used equipment or invest in new technology?

Faes: Since the start of our company, which was founded before NAFTA, Corporacion Asturiana de Camisas has been a fully automated factory. We have all the automatic equipment that exists for shirt manufacturing. When we started this company, we had plans to export, so we knew we needed the best equipment we could get. We invested in automated equipment to start producing quality goods right from the beginning.

Sagastume: Before NAFTA, the strategy [typicallyl involved working with used and reconditioned equipment, and the technology was kept to an "undertrimmer level." Automatic equipment was regarded as too difficult to maintain, and there was no way to justify its cost given the labor costs.

Bobbin: How have companies' approaches to equipment and technology investments changed as the scope of business in Mexico and other Latin American countries has changed? Do these approaches vary depending on whether a company is locally owned or U.S.-owned?

Faes: The only thing that has changed is the increase in the amount of work to be done because of all of the customers coming from the United States. Manufacturers in Mexico and other countries have had more technology needs as a result. For example, as U.S. distribution centers have become more automated, we have had to send products with bar codes, which are something we haven't always used. We are purchasing more equipment as time goes by to be on top of whatever our U.S. clients are doing in their U.S. distribution centers.

Sagastume: Domestically owned plants in Mexico and other Latin American countries, as well as U.S.-owned plants are using higher levels of technology. The change in the scope of business has forced the use of technology in order to meet the increasing quality requirements of the U.S. market.

Bobbin: What role, if any, do U.S. or other customers typically have in determining the type of equipment and software purchased for facilities in Mexico and Latin America? How does this involvement vary by the type of customer (i.e., a major brand vs. a retailer)?

Faes: It varies. Retailers may be interested to see if we have EDI [electronic data interchange] capabilities, so that we could service them as fast as anyone in the United States. If we are doing 807 packages, however, then we are really looking at servicing a U.S. apparel firm, which is then going to serve the retailer.

Sagastume: Some specific pieces of equipment might be required by a customer. This is much more likely to be required by a brand than a retailer -- but not to any great extent. Some retailers do provide specific software needs; the apparel firm has to purchase the software and hardware in order to enable communications.

Bobbin: What are companies' greatest challenges in terms of financing new machinery and technology purchases in Mexico and Latin America? What changes -- i.e., financial reforms, new ways of structuring equipment sales contracts, etc. -- would make it easier for manufacturers to make more capital investments?

Faes: For Mexican manufacturers, the key problem is financing. Financing through banks in Mexico is very expensive. Therefore, if we only use Mexican banks and finance purchases ourselves, it becomes very expensive. We are talking about interest rates of more than 25 percent to 30 percent. It is impossible to finance new equipment using only Mexican banks. To overcome this, we are working very closely with machinery suppliers, who are willing to finance for longer periods. Also, our customers are willing to partner with us in strategic alliances, and together we buy new equipment. We pay them with work, or they allow longer terms to pay off the debt.

Sagastume: High interest rates and shorter payment terms are the main challenges for companies in the region that are trying to finance new equipment. Local equipment providers are financing equipment purchases, and large Mexican and Latin American companies are obtaining U.S. financing in order to overcome these obstacles.

E-Commerce Influences Manufacturing Techniques

Bobbin: What manufacturing methods (i.e., modular, progressive bundle, unit production systems, etc.) are commonly used on production floors in Mexico and other countries in Latin America and why?

Faes: We use a progressive bundle system in our factory and so far, it has worked well. We went from a regular bundle system to a progressive bundle system, and we have seen production move a little faster as a result. At this time, I do not think we are prepared to go to a modular system. It is something we want to do in the future, however, perhaps in the next couple of years, when we have been able to sufficiently train employees to work in modules.

Sagastume: From my experience, by far the most common system is the progressive bundle system. This is often run through relatively small production lines of about 30 operators -- thus gaining some of the potential advantages of modules. I have seen some modules, but I have not seen unit production systems.

Bobbin: How are trends toward direct-to-consumer sales via the Internet and increasing customization of apparel likely to affect the way Mexican and Latin American apparel producers set up their operations?

Sagastume: The trend is to develop more flexibility in production format and increase the use of modular manufacturing.

Faes: We are being approached by different customers for higher levels of technology, such as Internet capability for communication. In Mexico, any Internet service is very new, but our customers are definitely doing it, because they want the quick response it provides. ... Quick response is something factories in Mexico do very well. You are going to find factories that can do special cuts, such as very small runs, and get those orders done quickly and shipped to their customers. To do this even better, production methods and equipment will have to change. We will have to start using modular systems to provide a quicker response, or get new equipment that enables us to quickly fill cut-to-order requests.

Bobbin: Do you think you will be buying some single-ply cutting machines and made-to-measure CAD programs to provide cut-to-order services in the future?

Faes: Yes -- probably in the next five years.

Bobbin: As you continue to enhance your business, what new capabilities and services are you planning to offer? How will this expansion affect the way you equip your plant in the future?

Faes: The trend is to become more of a service operation -- not only an apparel company, but also a full-service company for one-stop sourcing. Now, U.S. companies have to source everywhere to find fabric, thread, buttons, everything that makes up a shirt. For the future, we are developing relationships with textile companies so that we can provide our customers with the fabrics they are asking for. We not only will be doing more complete package work, but also ensuring that the proper logistics are in place to get the goods to the customers on time.

The Role of Quality

Bobbin: How does the Mexican apparel industry compare with other manufacturing locales around the globe in terms of technology, quality, etc.? In particular, how does Mexico's industry compare with other manufacturing locales in Latin America?

Sagastume: Typically, the Mexican industry is a couple of years behind the U.S. industry, and the U.S. industry is a couple of years behind the European industry, particularly Germany, in the use of technology.... My feeling is that Mexico is generally ahead of most Latin American countries in use of technology.

Bobbin: Looking specifically at quality, how would you rate the overall quality standards in the Mexican and Latin American apparel industries? How has the region's quality improved over the past decade?

Faes: Mexico has changed a lot. Before, we had really bad quality. Now that everybody is looking to export and our local market is in a sort of depression, quality has greatly improved. ... The quality is comparable to any other country that is producing well-made clothing.

Sagastume: Quality is a function of a plant's management and not necessarily a function of a country or region. Overall quality standards have increased as a result of the customer's demand for better products.

Bobbin: How are industry quality control programs -- such as statistical process control (SPC) -- affecting the type of machinery and software installed in Mexico and Latin America?

Sagastume: These types of programs are having very little effect on machinery and software investment, except in the case of specific semiautomatic machines, such as a J-stitch machine for men's trousers, which can help to assure consistent quality.

Faes: For quality control, we have to invest in things like bar coding, so that we can track our bundles and know exactly where everything is in the production process, and the amount of time it is taking us to produce our goods. This also allows us to track the statistics of what machine makes what error, or what person makes what error, so that we can try to fix the problem as quickly as possible. We use the U.S. Army's statistical control methods, and we use the same standards any U.S. company would use.

Olga G. West is associate editor of La Bobina, the leading Spanish-language publication for the sewn products industry and a sister publication of Bobbin.

About the Executives

Alejandro Faes

Lisandro Sagastume

Faes, a 17-year industry veteran, leads one of the most modern woven dress shirt facilities in Mexico. His Toluca-based firm does 807 and full package work for customers including Arrow, Van Heusen, Guess? and Oxford industries, to name a few. Founded in 1990, the company employs nearly 400 people, and produces 2,000 dozen shirts per week, all exported to the United States. Faes is also vice president of the Camara Nacional de la Industria del Vestido (CNIV), Mexico's largest apparel industry association, and a member of the advisory board negotiating a free trade agreement between Mexico and the European Union. Sagastume, who has worked in the industry for 12 years, specializes in the Latin American sewn products industry. His area of expertise is in plant start-ups and productivity improvements in the Mexican and Central American apparel manufacturing industries.

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