There are several financial benefits associated with outsourcing your propagation. Although it may seem like a daunting task, JLPN President John Lewis spells out why it’s advantageous and how he can help manage a smooth transition.
Q: What are some misconceptions growers make when they consider doing their own propagation?
A: The biggest misconceptions are, “I’m doing this to save money,” or “Well, we’ve always done a little propagation ourselves, so we are set up for it.” While both responses to some degree are true, both in time and financial savings, the concept also relies on not having a crop failure, and in turn, having to purchase the plants regardless.
Even at JLPN, we learned many years ago with rooted cuttings that if we were successful on the first go-around, we were in the money. If we failed and had to do it twice to get a crop, we covered our costs. If we did it three times, we were throwing money away, and often, the third time was not a charm. So if somebody is doing in-house propagation and they don't hit it right the first time, they are left to retry (to financially push) or purchase, which by this point is a bigger loss, because they could have saved money by buying seedlings in the first place.
What are some common mistakes growers make after they start propagating in-house?
As I mentioned, not cutting their losses, and doing it over and over again is a common mistake. The biggest mistake is not running the numbers, so they know without a doubt the true cost of that finished product. When you are doing something for years, you figure, “Hey, I grow what I grow, and we make what we make.” I had a $20-million company tell me that around 2004 when times were good. Fast forward about four years and everyone was running the numbers, including me, and I can tell you for truth, we were losing our tails on multiple products. We were at the point where we weren’t making profit. We were chasing cash flow, which would have eventually put us under, had we not ran the numbers. You think when everything is good that you’ve got to be saving money, but I can tell you exactly what we make on every product. A lot of people think they are saving money, but they haven’t run the numbers to prove it, because in-house propagation is usually a small amount of overhead in the grand scheme of things. However, it all counts when you are trying to save money.
And when people have done it for years, it must be cost effective. Yes and no. When a grower needs 5,000 ¼-inch caliper seedlings, that grower doesn’t produce 5,000 seedlings. Instead, they have to grow possibly 10-15,000 to get the 5,000 they need. The result is a lot of by-product that is often un-useable, or gets transplanted for the following year. In the case of transplanting, you now have two years of costs sunk, and at that point, the best-case scenario is you are pushing on dollars, barring they all survive.
The alternative option is to pick up the phone and order 5,000 ¼-inch seedlings from JLPN. No planting, no hassle, no grading, no distractions from what the grower truly makes money on. We have an outlet for the other sizes that come as a by-product, and that’s one of the reasons we can be profitable.
What are the main reasons a grower should consider outsourcing propagation?
Labor, product reliability, and ease of operation. Labor and time is hard to come by in most cases, and the last thing that growers need during the season when they are buried in planting, staking, trimming, and taping, is to go mess with the seedling crop or go and stick some cuttings as a last-minute after thought.
I don’t grow seed to save money, and I harvest only the products that I can’t outsource. It doesn't save me a penny, and is a distraction from what truly makes us profit, our propagation. The same goes for shade tree growers. The money is out there in the crop that’s going to sell for several dollars of profit for each unit, not in the greenhouse where there are pennies to be saved. The labor should be focused on what’s making the margin really happen. So often we have growers order cuttings in late fall because they did their own far too late and had to buy them anyway.
As far as reliability, we cater to long-term buyers both based on the customer, but also, product purchasing history. We have been doing this for so long that if seed is short in supply, we usually will have a large share. This is a huge benefit to our long-term customers, as they know if anyone will get something that’s short on the market, it’s them. This is a formula that many growers subscribe to and why they are able to keep improving their position in the market.
We have growers with irregular ordering patterns who experience a crop failure, or never got seed, and they need a large number of seedlings. We can’t always cover them.
When it comes to my last point, ease of operation, it is so easy to look at the catalog, pick up the phone, order, and be done with it. Yes, it may cost a little more than doing it in-house on the front end, but think about what you will accomplish when you don’t have to address the distractions of attending seed or cuttings, the mess, the grading, the clean-up, etc.
What if a grower is already committed and doing their own propagation?
Some of my largest customers used to have more greenhouse space than I did. The numbers said it all. They were better off in more ways to make the call, outsource the headaches and outsource their overhead, than to do it themselves. I asked one of my best customers last summer, “Hey, why don’t you let me take care of all your propagation?” He said, “I know it would probably be best, but we’ve always done it, and to tell you the truth, we like doing it.” I can't argue with that. Some growers just love messing with cuttings and seedlings. In the instance labor becomes tight, and they have to decide on tending the shade tree crop for the sake of dollars or sticking some cuttings for the sake of saving pennies, I’m confident we will hear the phone ring.
What’s the best approach to phasing out propagation and outsourcing it?
First and foremost, the grower must outline their critical needs to us. We need to know which products are the backbone of their company and identify how we will be able to take care of those needs with absolute confidence. It’s a very large step for some companies, and they need to see our operation, and we need to see theirs. Full disclosure of past and present success and failures help both sides feel confident when making such a large decision.
You have to plan for time. In the many cases that we have essentially taken over propagation for companies, it wasn’t a one-year transition because that would be careless on both parts. We generally phase out on the grower side, and phase in on the propagation side over 2-4 years. Many times, the customer might be meeting JLPN for the first time because they were referred to us. Relying on JLPN to take over 10,000 to often several hundred thousand pieces a year is a lot of faith to put into a company that you’ve never done business with. However, like I said, having everyone look at both operations, and giving full disclosure of what you can and can’t do, and what you are and aren’t capable of, leaves both sides with a great deal of comfort and confidence in the other.
How do you help growers transition away from in-house propagation?
Like I mentioned, it all starts with a sit-down, and outlining the needs and expectations of both sides in sourcing, production, and financial. Then we go over our process, how we bring in seed, how it’s cared for, and our “system” of growing, which is often already known. We give timeline references such as dates when we know for sure if we will have seed or not, and what date we know what our cutting crop looks like. This gives our growers confidence and a sense of security that if anything is not going to work, they will know very early on in the spring or summer, not a week before ship date. We also share sources on seed or cutting material if we don’t have it on-site, because we don’t always have enough seed without getting our growers’ allocation. At that point, it’s off to the races growing the crop. We find the most critical factor in transitioning is making sure our customer feels well informed. It takes away stress and anxiety.
To learn more about JLPN’s propagation transition plan, contact John Lewis.