Reduce Waste and Production Costs through Lean Manufacturing
Updated: Jan 20
- The Journey of Meliora Cleaning Products
When was the last time you looked at the ingredients label of your cleaning products at home? How aware are you of each product ingredient’s use and impact not only on yourself but on the environment? Each time we use cleaners and detergents, we are releasing chemicals into the environment. In most cases, these chemicals can be toxic. With this problem in mind, Meliora set out to provide safe cleaning products both for its consumers and the planet.
In this episode, Meliora’s Kate Jakubas joins us for an insightful chat about her business. We discuss Meliora’s origins and its mission and vision. Then, Kate shares what it takes to manufacture products and packaging that’s safe for people and the environment. She then talks about the lean manufacturing process, just-in-time inventory, and the right time to hire a CFO. Finally, we find out how Meliora Cleaning Products intends to remain a profitable and sustainable business.
Do you want to know more about how lean manufacturing can help you run a profitable and sustainable business? Then tune in to this episode to learn more!
Here are three reasons why you should listen to the full episode:
Discover the environmental problem that Meliora addresses.
Find out what lean manufacturing and just-in-time inventory are and how they can help reduce waste and lower production costs.
Learn how Kate implements practices, techniques, and changes to grow a sustainable business and achieve her vision for the company.
Visit Christina Sjahli’s website! Learn more about innovating and scaling your business through the Her CEO Journey podcast series.
Chat with Christina and set up a time here!
Try out the Cash Flow Conversion Calculator to determine if your business is experiencing a cash flow issue.
Check out Meliora Cleaning Products
Maker to Manufacturer by Kate Jakubas
[05:56] Meliora’s Roots
As a material science engineer, Kate saw how a business can be a tool to solve problems.
“If you start casting your thoughts a little wider, you can think of business itself as a tool. For me, it was really interesting to think about how you could use business in order to solve a social or an environmental problem.”
While earning her master’s degree in environmental engineering, Kate had a class that discussed how environmental toxins get distributed.
We intentionally release toxins in our environment each time we use cleaning products.
Meliora addresses the lack of transparency in the ingredients of traditional cleaning products. They also make sure that their Meliora cleaning products are safe for people and the planet.
[08:37] What Sets Meliora Apart
Stepping-stone or gateway cleaning products still have ingredients that may be problematic. Furthermore, they use plastic in their packaging.
Meanwhile, Meliora is completely free of single-use plastics. It also has the strongest ingredient screening processes in the industry.
They also make sure that their prices are accessible.
“From the very beginning, the plan was to have that ingredient integrity. That was really the founding of the business was that product we're using, being able to be that source for people that knew we had really never compromised on ingredients.”
[10:53] The Product Manufacturing Process
At first, it was difficult to produce low volumes of custom products; Meliora had to use some plastic.
Meliora was able to transition to better packaging as they grew.
From the beginning, they never compromised on the ingredient integrity of their products. This is ensured through in-house production.
[13:43] The Cash Flow Planning Process
Meliora is completely bootstrapped. They started with a $5000 grant that Kate won in a business competition.
One of the biggest threats to new businesses is bad cash flow. - Meliora
Meliora made sure that they knew their numbers really well.
That understanding helped them make decisions and changes to remain a sustainable business.
[16:08] Setting Meliora’s Pricing and Costs
Meliora did a lot of benchmarking. They researched the cost of similar products and work to keep their prices in that range.
Meliora doesn’t sell products that couldn’t be sold at a reasonable price.
Lean manufacturing is a set of practices Meliora uses that reduce waste. This creates a more efficient process and better cash flow.
“We reduce waste throughout our entire process. That makes us much more efficient. It improves our cash flow. It does all manner of really wonderful things to our business and keeps it healthy.”
This helps Meliora sell reasonably-priced products and maintain profitability.
[18:00] Making Eco-friendly Decisions
Meliora offers powder detergent over liquid to avoid plastic packaging.
It’s difficult to find safe packaging for liquids.
Meanwhile, powder detergent is more concentrated, has less impact on shipping, and has compostable packaging.
[19:20] Understanding Lean Manufacturing
Kate’s background in manufacturing taught her to apply lean principles.
In a factory that applies lean manufacturing, raw materials are turned into work-in-process to supply the customer.
The volume of your inventory is based on what you’re expecting your sales to look like.
Meliora uses a countdown system to determine the products that need to be made.
[23:21] How to Apply Lean Manufacturing
In a factory, it’s best if people can easily understand the different ongoing processes.
Implement organizational tools.
Once you learn it, it becomes common sense.
Lean manufacturing is a continuous process. There is always something to change and improve.
[25:26] The Risks of Just-in-Time Inventory System
You need to know how quickly your customers need the item once they have ordered it. Through this, you know how much material you need to have on hand.
“Some of the questions you need to ask yourself when you're looking at this just-in-time is how quickly do your customers demand or need an item once they order it. That gives you some idea of how much material you need to keep on the floor. You have to figure out, too, at what point do you need to balance the cost with the inventory.”
You should also know how to balance your cost and inventory. You don’t want to have inventory that customers no longer want.
When ordering materials, consider supply lead time, time spent on the production process, and inventory turnover and demand.
Keep in mind that the right amount of inventory changes based on demand. So you have to constantly revisit your calculations.
[27:57] The Importance of Understanding the Supply Chain
There should be good communication with suppliers.
You can be prepared for changes in the supply chain by understanding where your materials are coming from.
A lack of preparation and planning can lead to supply shortages. This can cause you to lose sales.
[29:51] How Lean Manufacturing Helped While Bootstrapping Meliora
Lean manufacturing reduces waste and looks for cost-saving ways to keep a good cash flow.
Kate believes that having money from investors would not have been beneficial to the company.
This is because they will not be as critical of the business decisions they make.
Meliora remains a sustainable business because it takes out waste continuously.
[30:45] Vision For Meliora
Kate hopes to increase the accessibility of their products.
They want to change the industry by increasing transparency in ingredient labels.
Financially, they hope to grow 10 times bigger in the next 4 to 5 years.
“From an impact perspective, we're here to make sure that more and more people get access to great products that are low-impact, that help them meet their own desires to be environmentally friendly, and have a safe product that they can use that are not going to cause allergies or other issues.”
[32:24] When to Hire a CFO
Understanding finances can make or break your business.
A CFO can help you if your finances are beyond your capability of understanding.
They can ensure your business stays open and healthy by looking at your financial plans. Meanwhile, you can concentrate on what you do best in your business.
About Kate, Founder of Meliora Cleaning Products
Kate Jakubas is the founder and chief operating officer of Meliora Cleaning Products. This company is a growing sustainable business that focuses on ingredient integrity and transparency.
Kate has a bachelor's degree in environmental engineering and a master’s in material science engineering. She aims to use business to solve environmental problems. Her experience in manufacturing gives her the edge to implement smooth and efficient systems for Meliora.
Meliora is the Latin word for “better”. Since 2013, this company has been scaling up while keeping their mission and vision front and center. They aim to be an example of an eco-friendly and safety-focused sustainable business for others. They take pride in disclosing every ingredient in their products and campaigned for other companies to do the same.
“If you don't understand basically how much it costs you to make a product, you can't possibly know that when you sell X of them, then you're sustainable, or that you're big enough to move to a different space. So really, you do have to know your numbers in order to make decisions like that and make sure that your business is healthy.”
“[A countdown system] is a system that works really well. I don't have to guess about what we make. I don't have to tell our team what to make in the morning. They literally have a to-do list that's only based on what things are empty that need to get refilled."
“[Lean manufacturing] is a continuous process because every time you relook at a process, you can see something to improve. And that's part of the methodologies of lean is that you can always make things a little bit better.”
“Making sure you do understand where all these products are coming from all the way to, in that case, the agricultural growth of it, or the mining, or wherever your materials are coming from, that helps you do planning.”
“Understanding the cash flow of your business is something that can make or break you. And I think the right time to bring someone in is as soon as it gets out of your own capability of understanding.”
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In today’s increasingly environmentally-conscious world, there are businesses for good that aim to address environmental issues. Kate shares how Meliora utilizes lean manufacturing and just-in-time systems to maintain a profitable and sustainable business. If you enjoyed today's episode of Her CEO Journey Podcast, then hit subscribe and share it!
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Kate Jakubas: From an impact perspective, we're here to make sure that more and more people get access to great products that are low-impact that help them meet their own desires to be environmentally friendly and have safe products that they can use that are not going to cause allergies or other issues. That's really what the goal is. We've already saved a million plastic bottles from ever being made, from jugs to cleaning bottles.
Christina Sjahli: Often, we don't realize a series of small changes in the product that we use daily can actually ensure toxic chemicals and plastic stay out of the ocean. Today's guest, Kate Jakubas, the co-founder of Meliora Cleaning Products, connected the dots between safe home cleaning and laundry products, and the impact on our planet as she was studying master's degree in environmental engineering. In today's episode, Kate shares the thinking behind their products and packaging that are safe for both people and planet, the lean manufacturing process that allows them to build a profitable business, the risk and benefit of just-in-time inventory, and when is the right time to hire a part-time CFO.
This is part two of three of the Business for Good Podcast Series featuring female founders who are building businesses who create the future we want and the future we need. All of these female founders consciously choose long-term viability over short-term profits. They bootstrapped the business. And all of them are building and scaling meaningful profit. They also choose to be part of a global community of 4,000 plus B Corp certified businesses.
Now, if you are not familiar with B Corp certification, in that case, I encourage you to listen to episode 101 at christinasjahli.com/herceojourney where you can learn about B Corp, why it matters, and the certification process. You're listening to Her CEO Journey, the business finance podcast for mission-driven women entrepreneurs. I'm your host, Christina Sjahli. If you are new here, a big, warm welcome. If we are not connected on LinkedIn, please reach out and say hi because that's where I hang out and share my business finance tips. If you have been listening to this podcast for a while, and you are a regular listener, I want you to know I appreciate you. My podcast won't be around without your support. This is a free weekly show where my guests and I want to inspires you to balance between mission and profit. to create an impact in this world, and to achieve financial equality through your business for good.
At times, having received funding from investors can be a double-edged sword for the founder. It allows the founder to have this feeling, a comfortable position feeling, thinking there is money in the bank, so she spend it without thinking about whether it is really effective, which can lead to the wrong decision. And it can cover up the bigger problem at the operational level. Now, on the flip side, when you don’t have access to too much cash, it actually forces you, as a founder, to look deeper into the internal process and figure out where to improve the processes daily. That’s exactly what my guest talked about today, especially if you manufacture your own product. Inventory is one of the biggest area that you need to pay attention to. You deal with three level of inventories in manufacturing: raw materials, work-in-process, and finished goods. This means inventory has a significant impact on your cash flow; it can make or break your cash flow cycle. That’s why understanding how your inventory fits in into your business cashflow conversion cycle is critical. And often, founder misunderstood how cashflow conversion cycle works.
That’s why we have created a Cash Flow Conversion Calculator to help you determine if your business is experiencing a cash flow issue. This simple tool can also pinpoint where is the problem. You can find a way to this calculator in the show notes. We are here to partner with you. We understand business finance can be confusing, but it doesn’t have to be complicated. You want someone who is as passionate as you are, and takes your business to the next level.
Once you use the calculator, and you feel you need further help in figuring out your business finances, remember that we are here to partner with you. We understand business finance can be confusing, but it does not have to complicated. You want someone who is as passionate as you are, and takes your business to the next level. Once we show it to you, you will understand and trust your financial numbers. We also make sure you are making business decision with your purpose front and center. Connect with us at christinasjahli.com/let-s-chat.
Now, let’s find out Kate’s CEO Journey. Kate Jakubas, welcome to Her CEO Journey. It is such a pleasure to have you here today, Kate.
Kate Jakubas: Thanks so much for having me. I'm so happy to be here.
Christina Sjahli: Yes, and we're gonna talk about a lot of stuff, especially just-in-time inventory, how you build your business. But before we get started into that help me understand your journey from environmental engineering to founding Meliora.
Kate Jakubas: I think we all kind of come to funding your own business in different ways. But for me, I come from very much a technical and engineering background. I studied material science engineering. I studied environmental engineering. What I learned during my early jobs and during my studies was that you can use any manner of tools to solve things. It's a very engineering way to approach the world, right? It's all about problem solving. Do I use this duct tape? Do I use this other tool? Do I use this computer program to solve this problem. But if you start casting your thoughts a little wider, you can think of business itself as a tool. For me, it was really interesting to think about how you could use business in order to solve a social or an environmental problem. So coming from the engineering, the environmental engineering background, I really wanted to apply the tools of business and the methods of business in order to solve an environmental problem, which in my case, was the lack of transparency in the ingredients that were in traditional cleaning products.
Christina Sjahli: How did you even get started to create all of this product?
Kate Jakubas: I worked for a few years when I got out of school. At first, I decided to go back and get my environmental engineering degree. I was in a class that was it was a calculus class all about how environmental toxins get distributed. So if you spill a cup of coffee, or a barrel of oil, what happens to that content? What happens to those chemicals? We were figuring out so much partitions into the water, so much goes into fish population. This was a very technical class, of course, but I was in the back of my head thinking about the other implications of it. Because we don't only spill things on accident, we spill things on purpose. Every time we spray cleaner in our homes, every time we put laundry detergent into our machines, we're intentionally releasing things into the environment.
Kate Jakubas: So that really sparked the idea of reexamining the products that we use every day and trying to create a product that had ingredients that were safe to be released to the environment. Turns out there's a lot of overlap between ingredients that are safe for the environment and ingredients that are safer for people and safe to be used around your home. How do we intentionally use chemicals every day that are safer for us, for people, and the planet? It started with me in my kitchen mixing up a batch of powder, using some soap and some washing soda, and then throwing it into the washing machine and crossing my fingers until the clothes came out and luckily you know they were clean. So that was the first iteration, the very first thing that I did that was, "Hey, I think maybe this will be something that works."
Christina Sjahli: So there are products out there, for example, Seventh Generation, the one that using safe ingredient, natural ingredients. So I am really curious, how does your product different than those not natural ingredients? Are you using specific key ingredients in your product throughout your whole product line?
Kate Jakubas: If you look at other existing green cleaning products, such as Seventh Generation or Method isn't one that a lot of people are used to seeing a more green than conventional. Those are great. We call them stepping stone cleaning products or gateway cleaning products, if you want to think about it another way. They are better than conventional. What we do is we take it even a step beyond that. So if you look at products like Method or Seventh Generation, they still do have a few ingredients that can be problematic, including things like preservatives known as MI which a lot of people are sensitive to. They do use plastic in a lot of their products and a lot of companies are working to reduce that.
Kate Jakubas: But our company is completely free of single-use plastics in our entire product line. If sustainability is a journey, we're trying to get as close as we can to being that destination for people, for letting people really see like, "Okay, I'm trying to get rid of plastic. Look at this company that doesn't have any plastic that I can buy. I can go totally plastic free when I buy it. Look at this company that has entirely A ratings from the Environmental Working Group for the ingredients. This company, all of their products have been rated by a third party called Made Safe for the ingredient integrity." So we have both the strongest ingredient screening processes in the industry and also, the best packaging in the industry. We also work to make sure that it's price accessible. Because when you hear that you probably think like, "Oh, it must cost a million dollars." But we strive really hard to make it accessible.
Christina Sjahli: One thing that I noticed with a lot of cleaning products that I use, and then I started to move away from it, it's like the strong scent. Sometimes, it's just so strong to a point like I feel like I'm breathing chemical into my nose, right?
Kate Jakubas: Yeah.
Christina Sjahli: I started going moving away from those type of strong chemical scent. This is what I noticed, because I looked through your ingredients, you have main ingredients. Then you're also using a scent like lavender, lemon, clove; those are just like natural scents in there. But the other thing that I noticed, aside from all your packaging that are eco-friendly, I also noticed the type of where you source your ingredients. It seems like it's very specific. You want to get your supplies from... Your glycerin, for example, is 100% palm-free and vegan. Was that intentional from the very beginning, all of this planning? Or is it more a journey? You started doing one thing, and then moving away from it. Do more research...
Kate Jakubas: I would say for us the packaging has been more of a journey because as a small manufacturer, it's very hard to get custom product made when you're looking at low volumes. So even as recently as a few years ago, we did have a few pieces of plastic that we were using regularly. We've been transitioning that out. So that's certainly a journey is that as we've gotten bigger, we've been able to source better and better packaging that's more and more easily recycled or composted as we go. But from the very beginning, the plan was to have that ingredient integrity. That was really the founding of the business was that product we're using, being able to be that source for people that knew we had really never compromised on ingredients from day one. So we've never used synthetic fragrances, you're talking about those really strong scents that can give a lot of people a headache. Once you stopped using them and you go to someone's house, you smell their laundry room and you fall over.
Christina Sjahli: Yeah, exactly.
Kate Jakubas: So that's definitely been from day one. We've never... We've always had that ingredient integrity in place. That's one of the reasons we actually manufacture in-house because it can be really difficult, especially, when you're small to have the influence over a contract manufacturer or a supplier that makes the products for you. Because it's possible that you say, "Hey, please don't use XYZ ingredients." and the supplier says, "Yeah, yeah." Then lo and behold, you find out that those ingredients are in your product. So that actually has happened to a couple of so-called green products in our industry. It's hard to say whether it was intentional, or on whose end it was intentional, but certainly we never wanted that to happen to our brand. So that is why we literally... We're putting eyeballs on every ingredient that comes in. We make the soap ourselves. We mix the product ourselves. We put it in the containers ourselves. We're not just outsourcing that to a faraway manufacturing plant where we're crossing our fingers and hoping that our ingredient integrity holds up.
Christina Sjahli: Was that your plan from the very beginning, to manufacture that in-house?
Kate Jakubas: It absolutely was. I think when it comes to businesses, everybody comes with their own strengths. My own strength is in manufacturing. I spent my career before I started this company in larger manufacturing places, learned a lot of best practices about how to make a product like looking for walls, choose the right equipment, look at the flows of the material through the plant. That was really a strength and continues to be a strength at our company.
Christina Sjahli: I'm pretty sure that you have heard the statistic that 82% of businesses fail in the first five years. That's because of cash flow. How did you finance aside, in addition to the $5,000?
Kate Jakubas: We are completely bootstrapped. We started with a $5,000 grant that I won in a business competition. Some people are the sort of people that leave their job and launch a thing. To me, that requires the cash reserves that we just didn't have access to. So it was a couple of years before, I think it was two years, before Mike was able to leave his job and work on the business full-time. Then it was another year before I left my business. We didn't have to worry about paying the mortgage; we were able to make small mistakes and grow slowly because we didn't have to immediately provide for ourselves. We still had our other jobs.
Christina Sjahli: What does the planning process look like in terms of cash flow to make sure you didn't run out of capital at the early stage?
Kate Jakubas: If you think about the problems you need to solve for the business, that's it, right? That's what kills the business: it's cash flow. The factors that we looked at were really, really, really knowing our numbers, literally talking about your P&L, your cash flow, your balance sheet. Those are really, really important documents to be able to understand, and to know how they were structured, and set up. We literally did our own books. We did our own bookkeeping until maybe two years ago, I think. So actually being able to understand and function and operate that part of the of the business was really critical.
That's one reason we were confident enough when we looked at, "Here's our current cash flow. Here's what our profit and loss looks like. Here's what we know it can look like if we were 10, 20 times bigger than we are today." Being able to see where that profit comes from, being able to see where that accommodation and where the sellers can come in to support ourselves, to support a team that we knew he would have to have in order to be big enough for it to be sustainable. So people talk about a crystal ball with business, right? You never really know, but understanding exactly how it works. If you don't understand basically how much it costs you to make a product, you can't possibly know that when you sell X of them, then you're sustainable, or that you're big enough to move to a different space. So really, you do have to know your numbers in order to make decisions like that and make sure that your business is healthy.
Christina Sjahli: Earlier in the conversation, you mentioned that you want to make sure that your product is reasonably priced. The fact that all your ingredients are natural ingredients, and then you are making eco-friendly packaging and reasonable pricing, what is your thought process into your pricing and into your costs?
Kate Jakubas: If we think about pricing, we do a lot of benchmarking. We look at conventional products. We look at, for example, a green shelf. So if you walk into a store, like Whole Foods, what cleaning products are on their shelf? How much do those products cost? Can we make a product that is somewhere in the range of those existing products? We don't want something that's a lot cheaper because, of course, if people are able to pay more for products, that's great for us. It makes the business more sustainable. But we also don't want to be way more expensive because we want people to be able to afford it. That's where a lot of our costing effort comes from is making sure this is what other people are offering.
If we can't make a product for that reasonable price. We don't want to introduce a laundry product that costs $500. So we have had a few products that we've decided not to launch because we didn't think that we could could sell them for a reasonable price. The other secret that we have, especially, compared to other smaller companies is we do have that manufacturing expertise. So we follow something called lean manufacturing. It's a set of principles. It's a set of best practices. If you know much about this concept. It was founded by a lot like Toyota, as a company. These practices that really make the manufacturing, and even the development process really lean. By lean, I mean not a lot of waste. So we reduce waste throughout our entire process. That makes us much more efficient. It improves our cash flow. It does all manner of really wonderful things to our business and keeps it healthy. So coming in and having that lean manufacturing expertise on our team has been really key to making sure that that profitability stays there.
Christina Sjahli: Before we get into the lean manufacturing, I look at your laundry product instead of liquid, you are producing powder. I'm pretty sure there is a reason why you don't have a liquid, instead you choose powder. Can you share that reason?
Kate Jakubas: Yeah, it's really simple. It's just to help avoid plastic. That's pretty much it. If you look at laundry products in Europe, it's actually more common to buy powder than liquid in Europe, but that's not the reason. We're not trying to be European; we're trying to do the right decision for the environment. For us, that means we want to be able to package in non plastic materials. It's very, very difficult to find a safe material to package liquids in. Your options are basically glass and metal which can both be pretty heavy and expensive. We do use a bit of metal here and there. Glass, we do a little bit with, but we're not... We don't want a giant jug that's made of glass that we want to ship to our customers. So by using the powder, it is more concentrated inherently because again, we're removing that water that you're used to with liquid detergent. So we're shrinking that down. So it's got a lower impact as far as shipping goes because again, it's very concentrated. But we're also able to use cardboard packaging, which is lighter. It's more eco friendly. We can use recycled materials. You can recycle it. You can compost it. So the lifecycle of that packaging is a lot friendlier when we use powders and solid materials instead of liquids.
Christina Sjahli: Now, let's dive into the interesting part about lean manufacturing. What is this lean manufacturing? How did you get started with this lean manufacturing in your own business?
Kate Jakubas: I'm lucky that I have had that experience, as I said earlier, I come from manufacturing. So I was lucky that I already knew lean before I started this business. I had worked for several years in manufacturing environments where I applied lean principles in my projects.
Christina Sjahli: I know we haven't mentioned this but you have a book, Kate, which is talking about all of this: about the pull system, the push system, and then implementation of inventory software and businesses needs that. Walk us through.
Kate Jakubas: Absolutely. One of the things I like to explain as an analogy for lean is actually if you go to a restaurant like Chipotle. So Chipotle is a fast casual restaurant where you can walk in the door, and then you can have a burrito in your hands. That's exactly the burrito you wanted in a couple of minutes. If you think about the restaurants perspective on that, they don't have ready made burritos just sitting behind the counter, right? That would be one approach where they just have like, "Oh, you wanted chicken and rice and this and that? Okay, let me find that out of the 1000s of burritos that we made." That's not how Chipotle works, right? Instead, what they have is they have a limited amount of inventory. So they have in lean, we call it work-in-process. They've got the ready made guacamole. They've got the rice. They've got the chicken. They have all those ingredients that you can look at and put into your burrito. But then they also have other work-in-process; somebody is grilling chicken in the back. Then they have the raw materials that are stored in the freezer or in the fridge on the restaurant premises.
So you think about it that way, that's very much the same way that a good lean manufacturing factory works in a setup. So you have some inventory and the exact amount of inventory can be a judgment call based on what you're expecting your volume and what you're expecting your sales to look like, how much you're expecting to go through. That's always something that we're working to optimize as lean engineers. But, again, if you go to Chipotle and just watch them for a while, you'll see exactly how they turn over inventory and turn over work-in-process in order to keep supplying their customers with exactly what they want, exactly what they need. It is very much sort of a just-in-time type of approach, but with fast food.
We do something really similar with our factory. So we've got a number of steps. What we're not going to do is get an order online, and then say, "Oh, no. Let's order the coconut oil in order to make this product." Right? So we keep those materials on hand. We do start the process. We have a small but functional amount of work-in-process so that we're able to keep up with orders as they come in. The exact mechanics of that can vary. Again, there's best practices that you can set up. But when I tell people that we have an automated production planning system that doesn't require a computer, people look at me like I'm insane, that it doesn't make any sense like, "What do you mean? How do you mean it's automated?" That's what a countdown system is.
It's basically the same system that Chipotle uses. It's like, "Oh, look, you're out of guacamole." You fill it and then you use that empty container to say, "Look, wait. If somebody needs to make more guacamole, somebody needs to peel an avocado." We have that exact same system set up in our factory where I don't have to tell people, "Tomorrow, we're making lavender soap," because they see, "Look, this bin is empty, I need to make more soap." So it's a system that works really well. I don't have to guess about what we make. I don't have to tell our team what to make in the morning. They literally have a to-do list that's only based on what things are empty that need to get refilled. It's really great for communication. Again, it means I don't have to be there first thing in the morning telling people what we're working on. Everyone knows what to work on. So that's some of the ways that we use some automated planning tools, our countdown is what is called in lean manufacturing in order to keep our processes moving really smoothly.
Christina Sjahli: How can they start with this lean manufacturing?
Kate Jakubas: When it comes to the factory and when you walk in, overwhelmingly we hear people, "Oh, it's so organized in here. Oh, it's so neat and clean in here." That's the impression that you want from anybody that visits your factory. You want them to immediately understand what's going on in the factory. You want them to feel confident that they're not getting the wrong product because something's a big mess. So even just implementing the organizational tools, you can do before you've gotten a single order, right? We talked about lean, it's not necessarily just one thing that you absolutely have to do, and then you've done lean. Or if you don't do something, then you're not doing it right. It's really a set of once you learn that they feel like common sense.
Christina Sjahli: What were the struggles you encounter for yourself or your own business when you implement this lean process?
Kate Jakubas: It's a continuous process because every time you relook at a process, you can see something to improve. And that's part of the methodologies of lean is that you can always make things a little bit better. So it's not something that you can just get your paperwork signed off and be done with lean. It is something that you have to continue to do. It does continue to pay dividends. You do keep improving which is great, but it's not something that is just a one and done.
Christina Sjahli: I understand that one of the biggest risks in product based businesses, one is inventory turnover. That's why this is lean is really great, because inventory turnover; how fast you sell your product. If it's slower, it means your cash is really tied up in that inventory. It's really affecting your cash flow. And then the second thing is about obsolete inventory, which means there are certain products your customer don't buy. And you want to make sure you don't produce that before it's too late. And the third benefit, I know, it's about carrying costs. Because the more inventory that you carry, it means you need to have a place to store your inventory, the more space. And then the larger size of warehouse you need, which is the higher cost. So what are the risks of just-in-time inventory system?
Kate Jakubas: Oh, there's so many. I really wish that there were some better guidelines around understanding that it's not possible to really do just-in-time, and, therefore, what is realistic. Some of the questions you need to ask yourself when you're looking at this just-in-time is how quickly do your customers demand or need an item once they order it. That gives you some idea how much material you need to keep on the floor. You have to figure out, too, at what point do you need to balance the cost with the inventory because you don't want your inventory sitting around for a year. What if your customers decide they don't want that product anymore? Now, you don't have anything. You've got this carrying cost. You've got obsolete product on your floor. So I think finding your own sweet spot between how frequently to order, when you get your volume discounts, and so on and so forth; it is a little bit industry-dependent, it is a little bit dependent on what your cash flow situation is. There are a lot of factors for it.
Kate Jakubas: Just to give you an idea so we look at ordering enough inventory at a time to get us about three months, for example. So you can target how many inventory turns you want, and then make your orders that way. So we might order more product if it's got a longer lead time. Our chemical supplier is really reliable. And we can just call them and get product in a day or two. So I'm not going to keep three months of inventory if I know a supplier has delivered on time every time and it takes them two days to get me something. It's actually one of the biggest parts of my job is trying to make sure we keep products and materials on the floor. And then all of that gets exacerbated by... Anytime I figure out, "Hey, let's... We're going through... We make a 1000 of these products a month." So this is how much inventory I need to keep on hand. Well, guess what? Next month, instead of making 1000 that month, the demand has gone up. And now we're making 5000 a month. So everything I just calculated goes out the window. Those are good problems to have. But certainly I talked about it being a continuous process. As soon as you figure out the right amount of inventory to have, usually you need to redo it. So it's something you need to keep paying attention to.
Christina Sjahli: And then one thing that I also learn about this process is your suppliers. You need to have a good communication. And then, also, understanding their process in creating that product that you're going to purchase. Because how fast they can create that product, like you said, it's really important. This lean system, I don't think it's going to work without working together with the supply chain. If your supplier cannot commit as well, it's hard for you. You may not get your raw material deliver on time and the right amount.
Kate Jakubas: Yeah. Understanding supply chain is really critical. I know there are a lot of businesses that are very marketing focused, and they are outsourcing the entirety of the product manufacturing process. And there's a lot of risk there. I mean, just like there's still risk in our process, we still have suppliers and a pretty large supply chain. But like we... Just as an example, there was a hurricane in the Philippines about a year ago. We get a lot of our coconut oil through that supply chain. So understanding either we might have a supply issue, what is our floor stock look like? Do we need to order some right away? Do we need to find a backup supplier? Are we expecting cost to go up because the supply chain gets interrupted? So making sure you do understand where all these products are coming from, all the way, in that case, you know, the agricultural growth of it, or the mining, or wherever your materials are coming from that helps you do planning. Because what I would hate to have happen and what could happen if we weren't paying attention is like la di daa, we wait until we run out of coconut oil and then we call and they say like, "Oh sorry, like there's none to be had." Right? And what we saw during COVID was that happened in a lot of ways. There definitely was product where the supply chain got really interrupted and if you're not paying attention to that, you're just choking off your own supply. Your customers are going to be unhappy and then, of course, you're losing all of the sales because you couldn't keep things moving.
Christina Sjahli: That's why I think understanding your supply chain working with your suppliers are really important. Important in all cases, but especially if you are applying this lean system. You need to stay on top of that because the delay and the supply change is going to create unhappy customers. Let's put it that way. I know that you have been bootstrapping this business all the way. The lean manufacturing that you put in place, is this contribute to your ability to be able to bootstrap?
Kate Jakubas: Yeah, a 100%. There's I can't... I really cannot imagine being able to bootstrap without relentlessly looking for waste, and relentlessly looking for cost saving so that our cash flow stays healthy and positive. If we had investors, in some ways, I think it would make us a worse company. Because if you just have this money, you can just spend without thinking about it; thinking about whether it's really effective. Sometimes, that can be the wrong decision. And it's possible to have too much money, where it can cover up some of the problems that you're experiencing. Honestly, I think that's the number one way that we've been able to be successful and we've been able to bootstrap is the fact that we can look at all of our processes and take out the waste continuously.
Christina Sjahli: So what is your vision for Meliora from both impact and financial perspective?
Kate Jakubas: From an impact perspective, we're here to make sure that more and more people get access to great products that are low-impact, that help them meet their own desires to be environmentally friendly, and have safe product that they can use that are not going to cause allergies or other issues. That's really what the goal is. We're trying to change the industry. When we started eight years ago, there was no requirement at all to label ingredients on cleaning products. You could just buy a big blue jug and not see a list of ingredients. That has been changing both through us. We're leading the industry in terms of our ingredient processes, in terms of putting those ingredients right on the label. There are now some laws like one in California that does require more disclosure, happy to tell people what what the ingredients are. So really changing that industry making things more transparent; that's our goal. We've already saved a million plastic bottles from ever being made, from jugs to cleaning bottles. We'd love to double, triple, 10 times that impact by again reducing our impact and continuing to offer product that's got that lower environmental impact.
Christina Sjahli: What about from a financial perspective? What is your goal over the next few years?
Kate Jakubas: In the next few years, we're going to get about 10 times bigger and the next four to five years. So scaling up everything, basically all of our process, right? But from the physical processes, the sales processes, every process that we have needs to scale from today to about 10 times bigger.
Christina Sjahli: With your vision to go bigger, 10 times bigger than you are now in the next four to five years, I am curious. At what point you think a business is going to need a CFO on a part-time basis?
Kate Jakubas: Understanding the finances, especially as a CPG company, understanding the cash flow of your business is something that can make or break you. And I think the right time to bring someone in is as soon as it gets out of your own, out of your own capability of understanding, right? Depending on how close finances are to your own skill set; the further away it is, the less you really understand and know about finances, the sooner you're going to need to bring someone in. If you're not doing it well, you can drastically improve your business by having someone by your side. Mike has an MBA. So we looked at that. We were okay for a while.
Kate Jakubas: We currently have an advisory board member that is a CPA and she does a lot of looking at our finances. So we have started to bring in outside help, someone that can look at our financial statements and say like, "What's going on here? What are your plans?" There's no way to beat people on planet friendly as a business, unless you're open, unless you have that profit. And somebody like a CFO, or someone that takes on that role can make sure that the business stays open and stays healthy while you work to grow the other parts of your business; whether that's product development or marketing, or what you feel you're really good at strategically.
Christina Sjahli: Kate, it has been a pleasure to have you here.
Kate Jakubas: I love everything that we covered today. I think it's been a really fun chat.
Christina Sjahli: So thank you so much. And where can people connect with you and Meliora?
Kate Jakubas: You can check out Meliora on our website. It's meliorameansbetter.com. My book is called Maker to Manufacturer. It's available on Amazon.
Christina Sjahli: I love that: means better because it is better.
Kate Jakubas: It is better.
Christina Sjahli: Yeah. Thank you so much, Kate, for being here.
And that's brings us to the end of another show. Thank you so much for listening to another episode of Her CEO Journey, the business finance podcast for women entrepreneurs. If you want to create a proactive financial plan and process for your business so you are ready to weather the financial storm over the next few months, let's chat and see what's possible for you. Book in a time to speak with me at christinasjahli.com/let-s-chat.