Mexico’s Growing Metal Class
For Keats Manufacturing Inc., opening a facility in El Paso, Texas, paid off in a big way. Founded in 1958 near Chicago to supply precision metal stampings, wire forms and assemblies to the electronics, medical, consumer goods and automotive industries, the company moved near the Mexican border in 1994 to take advantage of growing manufacturing activity south of the border and increased United States-Mexico trade under the North American Free Trade Agreement (NAFTA).
Starting in a 5,000-square-foot rented warehouse, Keats Southwest—the designation of the company’s expansion—has since moved into a custom-built 30,000-square-foot facility and has seen its business grow from $1 million to $10 million per year. Just about everything Keats produces in El Paso is sold to assembly plants in Mexico.
“We already had $1 million worth of work in Mexico in the early 1990s,” says Matt Keats, president of Keats Southwest. “My brother and I were making sales south of the border and we saw a boom of assembly plants and we said, ‘Wow, there is a lot of potential down here.’” Matt’s brother, Wade Keats, heads Keats Manufacturing Inc., the original Keats plant in Wheeling, Illinois.
Keats Southwest operates a set of sophisticated equipment used for metal stamping, wire forming and punch pressing that enables the company to supply a diverse array of parts for manufactured products custom designed for specific applications. “Not a lot of companies have all of these capabilities,” says Matt. “When we first came to El Paso, no one else was doing what we were doing.”
Keats’ machines produce parts that are incorporated into manufactured products by companies like Honeywell, Siemens, Delphi, Molex, AO Smith, Cooper Bussmann, White Rogers, Scientific Atlanta and Emerson. “We make 25 to 30 parts for Chamberlain garage door openers alone,” says Brad Keats, an account executive at the company and Matt’s nephew.
Keats Southwest has benefited from the large-scale growth in the manufacturing sector in Mexico, some of which has come at China’s expense. “It has become more cost effective to move assembly operations from Asia to Mexico,” says Brad. “With fuel costs rising and with the sheer distance between the U.S. and Asia, it is making a lot more sense to manufacture on this continent. We’ve seen a lot of our customers move entire assembly lines from China to Mexico.” In recent years, Mexico has become a manufacturing hub for many automotive and aerospace manufacturers. (For more, see sidebar, “Mexico Auto-Parts Manufacturing Shifts Into High Gear.”)
Keats Southwest has benefited from NAFTA, thanks to the agreement’s provisions that U.S.- and Mexico-origin products can move back and forth between the two countries duty free. At the same time, because of the way Mexican assembly plants operate, the company avoids the hassles of shipping its products across the border.
“Our customers pick up orders at our plant or we deliver them to their docks in El Paso,” says Brad. “The customers handle the logistics of the border crossing.”
“We aren’t involved with any export paperwork or duties which is kind of nice,” Matt adds. “We would need a bigger staff if we had to handle all of that.”
There are a few reasons why logistics are handled on the Texas side of the border and why Keats Southwest finds it beneficial to remain in El Paso, rather than relocating to Mexico.
“Logistics is huge in El Paso,” says Robert Queen, director of the U.S. Export Assistance Center, a unit of the U.S. Department of Commerce’s Commercial Service in El Paso. “There are a tremendous number of logistics companies and customs brokers located here, and these logistics companies support a large percentage of U.S. exports to Mexico. We are talking about 3,000 truckloads passing between El Paso and Juarez every day across the border.”
There is also a great deal of warehousing space available in El Paso. “There are large spaces available for sale or lease,” says Queen. “There are small spaces and sharing opportunities and plenty of real estate brokers lined up to help in this area. Warehousing in El Paso is much cheaper than on the Mexican side. That’s why a lot of inventory is kept in El Paso while in Mexico they concentrate on assembly.”
At the same time it is advantageous for Keats to manufacture in El Paso. “There is a reason why we are on the border,” says Matt. “It makes for a huge reduction in freight costs for our customers. We are shipping metal and that gets heavy. The freight costs would add up if our customers were buying from Connecticut or Chicago.”
Matt says the U.S. side of the border is also better for recruiting the highly skilled workers required to operate Keats’ more technical machinery. “It would be difficult to locate people with the right level of skill on the Mexican side of the border,” he says.
In fact, when Keats Southwest first opened shop, the plant was manned by technicians who had relocated from the Illinois facility. “We didn’t move to El Paso for cheaper labor,” Matt says. “When we first opened in 1994, I brought six guys from Chicago because they knew the equipment and the business, which is so rare down here. We had to convince people to come down with us and the way we did that was to give them incentives. If we had put an ad in the newspaper we wouldn’t have gotten anyone.”
One of the keys to successfully supplying assembly plants in Mexico is to adhere to and become certified under international quality standards. “Mexican manufacturing plants are now demanding much higher quality standards,” says Queen. “All Mexican manufacturers need to trace back where their materials came from and who has handled them. ISO 9000 is the general quality standard for manufacturing and there are other, more specific standards for the aviation and automotive industries.”
Keats Southwest follows and is accredited through two sets of quality standards: ISO 9001:2009 and TS16149. The ISO standard requires a detailed system of documentation so that parts can be traced in the case of failure. TS16149 is a more rigorous standard, according to Brad Keats, which is applicable specifically to automotive manufacturing. The company is also working toward certification under ISO 14001, an environmental standard.
“That is all about setting goals for reducing our environmental impact,” says Brad. “In our case, it means reducing the amount of lubricant-oil waste we produce.”
Certification means undergoing annual audits under both sets of standards, a process that takes five days for each. “There hasn’t been an audit where we haven’t been asked to make corrective actions,” Brad says. “But it’s all about becoming a better company, making better products, delivering on time all the time, and making sure that there is no chance of any defective products going out the door.”
The company also has to ensure that its suppliers are ISO certified. “We can’t even look at them unless they are certified under ISO 9001 at a minimum,” says Brad.
Although Keats Southwest is not subject to the documentation requirements of NAFTA—since it delivers on the U.S. side of the border—Brad believes the trade agreement has made a positive difference in how the company operates. The company’s Mexican customers demand frequent, small, just-in-time delivery of product, not only for the sake of efficiency but also because Mexican law taxes inventory if it is stored too long.
“Instead of releasing parts monthly,” Brad says, “we are doing it weekly or even daily. This is making us a leaner company by ordering smaller quantities of materials from our suppliers. We used to make bulk purchases of supplies to get the price down. Now we are asking for just-in-time deliveries, but we can negotiate a good price by issuing a blanket purchase order.”
One way Keats Southwest develops new customers is by attending B2B get-togethers sponsored by the local U.S. Export Assistance Center. The center also offers a Gold Key program which sets up individual U.S. companies with several potential Mexican customers, for a fee.
“We have found the B2Bs to be extremely successful,” says Matt. “We used to do two or three trade shows a year but they are going by the wayside in our industry. They don’t seem to draw decision makers anymore. We are putting more money into our website and that is where most of our inquiries are being generated.”
But Matt believes that getting face time with potential customers is still the best way to present the unique capabilities of his company, and that’s where the B2B luncheons come in. “We landed Honeywell as brand new account after meeting them at a B2B,” says Matt. “It took close to a year to get an order from them. They did their own quality assessment of our plant even though we are ISO certified.”
Honeywell is just the latest achievement in an ongoing success saga for Keats Southwest. “We went from six employees and six production machines to 50 employees and 50 machines running on three shifts,” says Matt. “We went from one million to 10 million dollars in sales. I’d say coming to El Paso was a great move. It was the best move we ever made.”
13 Logistics Industry Thought Leaders