Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How a Coffee Roaster Used Just-in-Time Inventory to Free 40000 Dollars
Transcript
- Lucas: So earlier this year I sat down with Jenna, who runs a small-batch coffee roastery in Portland. She told me she had roughly forty thousand dollars tied up in green coffee beans just sitting in a warehouse. Not roasted, not shipped, just waiting. Luna: Forty thousand dollars in raw beans. For a roaster doing maybe six hundred thousand a year in revenue — that's a huge chunk of working capital sitting still. Lucas: Exactly. And the thing is, Jenna was buying green beans twice a year — big orders from the importer to lock in price and availability. She’d get a container, store it, then roast from that inventory over six months. Standard practice in specialty coffee, right? Luna: Standard, but expensive. What’s the carrying cost on that? Lucas: She calculated it at about twelve percent of the value annually — so nearly five thousand dollars a year just in warehousing, insurance, and the opportunity cost of not having that cash available. Plus, beans lose freshness after a few months, so there was quality degradation on the tail end of each batch. Luna: So she’s paying to store beans that are slowly getting worse, while her cash is trapped in a warehouse. What did she do? Lucas: She switched to a just-in-time inventory system. Instead of ordering twice a year, she started ordering every two weeks based on actual customer orders rolling in. The importer was willing to split shipments — smaller quantities, higher frequency — because Jenna committed to a minimum annual volume. Luna: So she had to negotiate that with the importer. Did they push back? Lucas: A little. Importers prefer big lumpy orders because their logistics are simpler. But Jenna showed them her sales forecast — based on subscription numbers and wholesale accounts — and convinced them the volume would be the same, just spread out. They agreed to a weekly ordering window with a two-week lead time. Luna: That lead time is key. If she needs beans in two weeks, she can’t react to a sudden spike. But for a roaster with a stable subscriber base, that’s manageable. Lucas: Right. The biggest win was freeing up that forty thousand. She immediately used fifteen thousand to hire a part-time sales person, which within three months brought in twenty-two thousand in new wholesale revenue. The rest stayed in the bank as a buffer. Luna: So the cash flow improvement directly funded growth. That’s the virtuous cycle people talk about, but rarely see the math behind. Lucas: And the math works because she didn’t just reduce inventory — she increased inventory turns. Before, she turned inventory about twice a year. After JIT, she turned it about twelve times a year. That’s a six-fold improvement in how efficiently she used her cash. Luna: But JIT has a dark side. What happens if the importer has a shipping delay? Or a crop failure? Lucas: That’s the classic critique, and it’s real. Jenna mitigated it by keeping a two-week safety stock of her core two beans — the ones that make up seventy percent of her sales. That safety stock cost her about three thousand dollars in carrying cost annually, which is a fraction of the five thousand she was spending before. Luna: So she’s paying less for the buffer than she was paying for the excess. That’s a good trade-off. Lucas: It is. And she also diversified suppliers slightly — she now buys from two importers instead of one, which adds complexity but reduces the risk of a single point of failure. Luna: I want to go back to the negotiation with the importer. She had to show them her sales forecast. Did she have to commit to a minimum? Lucas: She did. She guaranteed fifty thousand dollars in purchases over the year, broken into monthly minimums. That gave the importer predictability. In exchange, she got the weekly ordering flexibility and a small discount — half a percent — on the green bean price. Luna: Half a percent, so maybe two hundred fifty bucks on fifty thousand. Not huge, but symbolic. It signals the importer sees her as a reliable partner. Lucas: Exactly. And that relationship matters. Jenna told me the importer now sends her samples of new crop lots before they hit the general market, so she gets first pick on some high-quality beans. That’s an intangible benefit that came from the JIT negotiation. Luna: So the inventory change wasn’t just about cash — it also improved her sourcing. Love that. Lucas: Let me tell you about the implementation because it wasn't seamless. The first month, she had a hiccup: she ordered too little of a popular bean and ran out for three days. Three wholesale accounts couldn't get their orders. That cost her about eight hundred dollars in lost sales and annoyed some customers. Luna: Ouch. So she learned the hard way that the two-week lead time plus safety stock needs to be calibrated carefully. Lucas: Right. She adjusted by increasing her safety stock on that particular bean from two weeks to three weeks. And she started tracking each bean's usage rate weekly instead of monthly. That visibility let her catch trends earlier. Luna: What tool did she use? Spreadsheet? Software? Lucas: She actually built a simple spreadsheet — nothing fancy. She tracks daily sales by bean, calculates a rolling seven-day average, then orders enough to cover the next two weeks plus the safety stock. It takes her fifteen minutes every Monday morning. Luna: That’s the kind of low-tech solution that works for most small businesses. You don’t need an ERP system to run JIT. You need discipline and a weekly routine. Lucas: And a willingness to trust the data over your gut. Jenna said the hardest part was not ordering extra ‘just in case.’ That impulse cost her thousands over the years. Luna: If these conversations have moved your work forward in some small way, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it really does make a difference. No pressure, but we appreciate every bit of support that keeps the show ad-free. Luna: Alright, back to Jenna. What’s the one thing she wished she had known before switching to JIT? Lucas: She said she wished she had started with a pilot — just one bean, not her full inventory. Test the system on a low-volume bean, work out the kinks, then roll it out to the core beans. That would have avoided the three-day outage. Luna: That makes sense. A small pilot reduces risk and builds confidence. Lucas: Exactly. And now, six months in, Jenna’s cash flow is smoother, her storage costs are down thirty percent, and she’s using the freed-up cash to grow. She’s even considering a second roastery location, which she never would have entertained when forty thousand was sitting in green beans. Luna: I love that the inventory shift unlocked a bigger vision for the business. It’s not just about saving money — it’s about what you can do with that money. Lucas: Right. And the takeaway for any small business owner listening is simple: look at your inventory and ask, ‘How much cash is tied up in stuff that isn’t moving?’ If the answer makes you uncomfortable, you might have a JIT opportunity. Luna: And start with just one product. That’s the practical step. Lucas: One product, one spreadsheet, one Monday morning. That’s all it takes to begin.