This paper studies distribution strategies for a company operating under different levels of the North American Free Trade Agreement’s (NAFTA) implementation. The resulting strategies show that the current restrictions on cross-border cargo shipments and the transportation cost structure for international shipments makes the use of Mexican distribution centers ineffective, despite low labor costs, for serving a U.S. customer base. Additionally, our studies demonstrate that large companies operating at the U.S.-Mexico border have a competitive advantage over small companies operating at the border or companies of any size operating in the interior of Mexico. This is due to the fact that larger companies can more efficiently use the transportation options available in Mexico, particularly trucking, whose cost is significantly higher in Mexico than in the U.S.

Problem Structure

The study focuses on three different scenarios:

  1. U.S. manufacturing facility operating in Mexico with a U.S. customer base under the current international restrictions for operation and transportation.
  2. Same as scenario 1 but including a Mexican customer base.
  3. Same as scenario 2 but with NAFTA’s transportation provisions are fully implemented.

Preliminary models are shown and a description of the analysis is given. A mathematical model is proposed to minimize costs driven from the distribution strategies.