Lesson #2: Learn when it's OK to run out of something. I try to train my employees to let me know when we are almost out of something so I can have enough inventory to keep the bakery running smoothly. I am not doing a very good job at this. We have a list on the refrigerator. It is peppered with items that we may seem low on but use infrequently. And it is totally lacking the obvious items like flour, eggs, margarine and oil that we are almost completely out of but use every day.
Why is this important? Well, I remember taking accounting courses in business school. Assets include cash and inventory. Liabilities include wages, taxes and accounts payable. On paper, the assets always equal the liabilities. The problem is you cannot pay liabilities with inventory. Most suppliers and debtors want cash. The trick is to have enough cash on hand to pay your bills, while at the same time have enough inventory to run the bakery. As the saying goes, "Cash is king."
Add to this equation the simple fact that you buy large quantities of flour and sugar and eggs and boxes at a time, but sell the finished products a only a few at a time.
Now back to the list. The list is extremely important for things we use every day. We don't want to run out of flour or sugar or eggs. When we do, production comes to a halt and I either send people home, or off the the Piggly Wiggly or Sam's Club (both are inefficient ways to acquire inventory). Personally I think they like going to the Piggly Wiggly... Production came to a halt and we had to go to the Pig today. For molasses (essential for Denny Chimes Gingerbread Cookies and it's homecoming week at the University of Alabama).
The list is also important for critical items, even if they are only consumed in small quantities. We don't use a lot of yeast at one time, but we cannot make bread without it. I need to know when we are running out. We may not use red food coloring in large quantities, but we cannot make red velvet cake, or decorate Alabama-themed shortbread cookies unless we have some on hand. During football season this is extremely important. We use boxes one at a time, but we cannot sell a cake or a dozen cookies without a box. And then the molasses...
On the other hand, here are 10 items currently on our refrigerator list that we CAN afford to run out of:
- Comet - We use comet to clean the sinks at the end of the day. The sinks can be cleaned with regular dish soap and bleach in a pinch. We do not use enough cleanser to have it delivered in large quantities from a supplier so I buy comet at Sam's Club (when they happen to have it in stock - which is another story altogether). I would never make a special trip or send someone to the store just to buy cleanser.
- Pepperoni - We make pizza on Wednesday. Usually we'll make tomato pizzas, pizzas topped with pesto, and pizzas topped with pepperoni. However, since pizza is not a regular menu item, offering only cheese and pesto pizzas does not signify the end of the world at Mary's, nor does it warrant a special trip to the store.
- Dried cranberries - We use a variety of dried fruit to make our fresh scones. About three times a year I buy several varieties of bulk dry fruit. Inevitably we'll run out of one before the others. This means that for the next few weeks, we'll be offering only blueberry or cherry scones. No big deal.
- Apricot glaze - I buy apricot glaze as a convenience. We use it in reasonably small quantities for our morning pastries and we could make it from scratch, but having it ready-made saves time in the morning. We buy a case at a time, which means six #10 cans, or enough to last 4-6 months. It is on the list because we've just opened a can, and only one is left on the shelf. That's at least a months worth. Again, no big deal.
- Green food coloring - Remember your color wheel? We have large amounts of two shades of blue and two shades of yellow. Green is not critical.
- Orange food coloring - Ditto. We are not in Auburn (school colors = orange and blue) and Halloween is the day after tomorrow. On Saturday, the need for orange food coloring will be even less critical than it is today. Orange can wait.
- Plastic soup spoons - We have almost 5000 regular plastic spoons. The soup spoons can wait a week or two or three...
- Cupcake box inserts - We buy special inserts to place in boxes that hold cupcakes. Each insert holds 30 cupcakes in place so they do not shift in the box. We use them at the approximate rate of 2-3 per week. They come 50 to a case and we just hit the halfway mark. I'm thinking December.
- Doilies - They come 1000 to a box and we have about one-fourth of a box. That's 250. We use about 10 per day to line trays for the display cases. That's about 25 days worth, or four to five weeks.
- Straws - We use straws as architectural supports for stacked cakes. We also give away straws with iced coffee. Once in a blue moon a customer will ask for a cup with ice (and straw) to go with a canned or bottled drink. We buy them 5000 at a time, five boxes of 1000. We have two boxes on hand.
Today's lesson? Timing of your purchases is extremely important for controlling cash flow. Know what's critical and what's not. Know your supply chain and how long it takes to get something delivered. Manage accordingly.
Next lesson? You are not playing with other people's money anymore.