Latest / Scaling Up with Fexingo: How Small Businesses Become Mid-Market Companies / How a Towel Maker Scaled to 20 Million by Fixing Its Supply Chain
Transcript
- Lucas: So there's this towel maker in South Carolina that hit a wall at about eight million dollars in revenue. They were selling to hotels and spas, demand was there, but they couldn't get past that number. Luna: A wall at eight million — what was the actual bottleneck? Lucas: It came down to their supply chain. They were importing everything from a single supplier in Pakistan, and lead times were running fourteen weeks. If a hotel chain wanted to test them with a big order, they couldn't deliver in time. So they'd lose the bid. Luna: So they were essentially turning away growth because they couldn't move fast enough. Lucas: Exactly. And the thing is, they knew their product was good. They had a loyal base of regional hotels. But every time they tried to pitch a national chain, the conversation died at logistics. The chains wanted short lead times and reliable restocking, and a fourteen-week window was a nonstarter. Luna: So what did they actually change? Did they just switch suppliers? Lucas: Not just switch — they diversified. They brought on a second supplier in Turkey, and they also started stocking more finished goods domestically. The goal was to cut lead times from fourteen weeks down to four. Luna: That's a huge shift. But holding more inventory ties up cash. How did they manage that without choking themselves? Lucas: That's the smart part. They didn't just blindly stock up. They implemented demand forecasting. They analyzed their sales data from the past three years, looked at seasonality — hotels buy more in spring and fall — and then built a forecast model that told them how much to hold at any given time. Luna: So they were using data to make inventory decisions rather than gut feel. That's a big step for a small manufacturer. Lucas: Right. And the result was that their inventory turnover actually improved. They were carrying more, but they were turning it faster because they had the right products at the right time. Their working capital didn't balloon the way you'd expect. Luna: Can you put some numbers on that? How did it show up in their cash flow? Lucas: Before the change, they had about two point five million dollars tied up in inventory. After they refined their forecasting, that number actually went down — to about two million — even as revenue grew. The key metric was inventory turnover, which went from about three times a year to five. Luna: So they were holding less relative to their sales, which means better cash flow. That's a win-win. Lucas: Exactly. And once they had that flexibility, they could finally go after the big contracts. Within twelve months, they landed a deal with a major hotel group — I think it was a regional chain that later got acquired by one of the big names — and that contract alone pushed them past twelve million. Luna: That's the kind of inflection point every founder dreams of. But I'm curious — what was the risk? They were betting that demand forecasting would work. What if it was wrong? Lucas: There was definitely a risk of overstocking. If they misread the seasonality, they'd be sitting on a pile of unsold towels and the cash would go to storage. But they mitigated that by keeping the second supplier in Turkey on a shorter leash — they could order smaller batches with a six-week lead time, so they had a buffer without committing to huge volumes. Luna: So they were balancing speed and cost. They weren't trying to be the cheapest — they were trying to be the most responsive. Lucas: Yes. And that's actually a lesson that applies beyond towels. A lot of small manufacturers get stuck because they optimize for cost per unit and end up with long lead times that kill their ability to win larger clients. This company flipped the equation: they accepted a slightly higher per-unit cost from the Turkish supplier in exchange for speed. Luna: That's a trade-off I think a lot of owners don't consciously make. They just assume that cheaper is better, but it can lock you into a slow cycle. Lucas: And the ironic thing is, as they grew, their overall margins actually improved. Because they were winning bigger contracts, they had more negotiating power on pricing. The cost per towel went up a bit, but their revenue per order went up a lot. Luna: So they were getting to a higher tier of client, which more than offset the higher input costs. Lucas: Right. And by the time they hit twenty million, they had three suppliers — the original Pakistani one, the Turkish one, and they'd added a domestic mill for certain specialty products. That also gave them resilience, which became really valuable in the last few years when we saw all those supply chain shocks. Luna: It's like they built a safety net as they grew. But I imagine the forecasting model took some iteration. How did they get the data to feed it? Did they have to do a lot of manual work upfront? Lucas: They started with spreadsheets. Honestly, just exporting sales data from their invoicing system and doing some basic trend analysis. But as they got more sophisticated, they moved to a cloud-based inventory management tool that integrated with their ERP. That automated a lot of the tracking. Luna: So the entry-level version is something a lot of small businesses can do without a huge IT budget. Lucas: Absolutely. The founder told me that the hardest part wasn't the software — it was actually the discipline of reviewing the forecasts every month and adjusting orders accordingly. They had to change their whole mindset from 'we buy when we need it' to 'we plan ahead and stick to the plan.' Luna: That cultural shift is often the biggest hurdle. But the payoff — going from eight to twenty million — is pretty compelling. Lucas: And that's the kind of result that makes this show worth listening to. If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Luna: Yeah, it genuinely helps us keep bringing these stories. Every little bit goes toward keeping the lights on. Lucas: So back to the towel maker — once they hit that twenty million mark, they started facing a new set of problems. You don't just stop at fixing supply chain. Luna: What do you mean? What came next? Lucas: They hit a capacity ceiling in their own warehouse. They were storing more inventory, but their space was limited, so they had to decide: build a new facility, rent offsite, or rethink their distribution model. Luna: Which route did they take? Lucas: They actually went with a third option — they started drop-shipping for some of their smaller hotel clients. Instead of holding inventory for every single order, they partnered with a third-party logistics provider that shipped directly from the supplier to the hotel. That cut their own storage needs significantly. Luna: Interesting — so they offloaded the storage cost to a 3PL and kept their own warehouse lean. Lucas: Exactly. And they used that freed-up space to focus on their high-volume, high-margin products that needed faster turnaround. So they essentially split their inventory into two categories: slow movers that go through the 3PL, and fast movers that they keep in-house. Luna: That's a smart segmentation. It's like they're applying the same principle to their inventory that they did to their supplier base — diversify and don't put all your eggs in one basket. Lucas: Precisely. And that's the theme of this whole story: as you scale, you have to keep re-evaluating your bottlenecks. The supply chain was the first one. Then it was capacity. The next one might be talent, or finance, or something else entirely. Luna: So for a small business owner listening right now, what's the one takeaway they should write down? Lucas: I'd say: look at your lead times and your inventory turnover. If your lead times are longer than your competitors', you're leaving growth on the table. That's where I'd start — measure it, then figure out what's driving it. Luna: And don't be afraid to pay a little more for speed. That trade-off can unlock whole new customer segments. Lucas: Right. This company proved that a small manufacturer can compete with the big guys if they're willing to rethink their supply chain from the ground up.