Page 28 - December2018
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is margins are low upstream in the supply chain,” replies Cook. “Often, retailers have failed when they’ve tried direct sourcing because they think they’re going to eliminate a lot of cost, but in reality, they don’t.”
Cook believes direct sourcing programs may be easier for retailers if they’re sourcing from countries where they also happen to have stores. In the case of Mexico, this includes Costco, H-E-B and Walmart subsid- iary Walmex.
“H-E-B is in Texas; they’re a regional  rm
that is also in Mexico, where they have oper- ated for a long time,” Cook says. “Texas has a lot of Hispanic consumers, particularly of Mexican origin, and H-E-B imports a lot of produce from Mexico into the United States, including ‘ethnic’ produce.
“They’re located north of the roads coming from central Mexico into Texas ... so it makes sense for H-E-B to maybe go more direct and bring products in because they’re also sending trucks down, providing a back- haul opportunity.”
Retailers often keep their cards close to their chests about what products they procure using direct sourcing, but Cook believes there might be a case for U.S. retailers with Mexican operations to source from growers where supply is fragmented, such as in crops such as chili peppers.
“They have their stores in Mexico that have relationships with growers in the area anyway,” she says. “It’s not like setting up a whole new sourcing system.”
“Walmart has huge operations in Mexico with Walmex, and the majority of the fresh produce that we have comes from Mexico. It makes sense to me that a retailer might do something more interesting in terms of direct sourcing because they’re there anyway.”
Cook adds the vertical integration piece of the supply chain is very signi cant in any conversation around direct sourcing.
“If you look at the Mexican industry for example, for most of the fresh produce they’re exporting in large volume, the key growers are forward-integrated grow- er-exporters that have of ces in the United States,” she says. “So you can source directly from Mexican growers that way. You don’t need to have an of ce in Mexico to do that.”
Jim Donovan, senior vice president of global sourcing at Mission Produce in Oxnard, CA, considers his company to be as vertically integrated as possible.
“In Mexico, we don’t grow any fruit,” he says. “The vast majority of the industry does not, but our vertical inte- gration and level of control is at packing. That’s the consolidator of 30,000
Jim Donovan
growers in Mexico.
“I can tell you, my
perspective is that in actual direct sourcing — retailers going toward farms, or for
that matter packers — those relationships are pretty minimal on the retail side. Obviously, Walmart is one. H-E-B is another example that comes to mind of companies that have been very active and progressive over many years actively searching out a direct relationship with a producer.”
Apart from that, Donovan claims a lot of direct procurement is really ‘direct sourc- ing-lite.’
“To be honest, most of it is talk,” he says. “They may go to Chile or go to Peru and communicate with an exporter, and they deal with them, but there might be somebody

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