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Keeping Track of it All – part 1 of 3

January 12, 2011

A Google search for “coffee shortage” brings up a slew of results about expected green coffee shortfalls in the coming years. I’m not much for predictions. That guesswork is best left to the cable TV “news” shows. Even a fairly dark perspective on the next couple of years gets turned on it’s head if you view it like David Pohl from Equator Coffee and Tea – http://www.equatorcoffees.com/blog/?p=234

What is reasonable to expect, and what I start thinking about when I see these gloomy predictions by the “experts”, is that there will indeed be lean years in the future, just as there have been lean years in the past. This year? Maybe. Some year? Definitely. Yields vary, natural disasters happen, markets change; it’s the nature of working with coffee. The question is, how do you steer your business through these inevitable hazards? I don’t run a coffee business, so honestly I don’t exactly know. What I do know is that having some data and good analysis tools can help. I also know that off-the-shelf tools available to small and medium sized specialty coffee businesses are nonexistent, leaving pretty crude options. Pouring over spreadsheets to try to figure out what coffees to order or how to price your products is simply not an efficient use of time, and it’s time that you’ll spend over and over and over again. Employing inventory software that assumes materials in = materials out assures that you have incorrect data from the moment you start using it.

In this three-part series, I’m going to look at three ways an inventory system designed specifically for coffee roasters can give you magical powers to keep your business running strong.

Part 1 is about containing costs, or dear old Cost of Goods Sold (COGS)

It’s a simple calculation; price you paid for a green coffee + costs incurred getting it into a state where you can sell it = COGS. Or is it? If you have coffee in storage, then the cost of goods sold changes over time. The bags that were at the warehouse the longest have a higher COGS than the very first bags delivered to your roasterie. Are delivery fees constant over the life of a coffee in your inventory? Ugh. Sure, you’ll still have to enter some data, but when you want to know the cost of goods sold for a particular coffee for any period of time, we’ll just tell you. No spreadsheet shenanigans required.

I mentioned storage and delivery fees. How can you minimize these costs? If you have room in a roasterie where storage costs you nothing, how much coffee should you take delivery on to keep storage costs down? How much are you paying in storage fees anyway? You could look over invoices from your importer, maybe get a report if your bookkeeper is that anal. Or, you could just call up a coffee in a good inventory system and read the screen.

A properly built green inventory system can help your business know exactly what is going on. Never say, “I don’t know.”

Next month, I’ll take a stab at pricing. Did you actually make any money on that tiny lot of Honduran Super Tasty?

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