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Three Episodes of The Profit and the Importance of Good Inventory Practices

In CNBC’s The Profit, Marcus Lemonis invests his time and money to turn around struggling businesses. The reasons for each business’ lack of success cover a range of bad business practices. However, the show’s second season (particularly episodes in the second half) pointed to bad inventory practices more than once as factors behind the failing businesses.

Here are three cautionary tales of bad inventory practices from The Profit with ideas for solving or avoiding similar situations:   Season 2, Episode 209: Courage B The fall return of The Profit began with a family-operated clothing retailer, Courage B. Among Courage B’s problems was cash tied up in inventory that wasn’t right for the business. Lemonis had to liquidate much of the existing inventory to help save the business. Clothing inventory that doesn't fit a brand is only one way excess inventory can present problems. Too much inventory not only ties up your cash, but it also raises your storage cost and as a result, the cost of goods sold. Knowing how many Stock Keeping Units (SKUs) to have on hand per inventory item is key to preventing too much inventory. That information should be in your inventory system’s history – if you have an inventory system in place. Lesson: Avoid too much inventory with an automated inventory tracking system.   Season 2, Episode 212: Unique Salon and Spa Unique Salon and Spa in Long Island, N.Y. faced challenges after the owner’s split with her former business partner left her $170,000 in debt. When Lemonis learned more about the business, he discovered 70 percent of the business’ revenue was generated by the hair color department, making the color room inventory essential to the business. Unfortunately, there was a lot of inventory waste, around 10 percent of $25,000 color inventory each month! One of Lemonis’ steps for improving Unique Salon and Spa was to create a system for inventory tracking. The salon didn’t use an inventory management system – they looked at trash to find out what needed to be ordered! Not only was the system unsophisticated, it was very ineffective. On the other hand, perpetual inventory systems track sales and inventory movements in real-time, allowing for automatic reordering when it’s best for the business, not just because inventory has run out. Lesson: Forecast re-ordering by tracking sales.   Season 2, Episode 213: West End Coffee Company The West End Coffee Company, in Greenville, S.C., suffered from friction between owners John and Becky; however, this was only part of their troubles. In addition to addressing the conflict between John and Becky, Lemonis pointed to the need to sort out the warehouse and inventory system. He streamlined inventory by eliminating flavors that weren’t selling well, at which point he discovered that an excessive purchase of a seasonal product had led to expired stock. West End Coffee Company isn’t the only business to be faced with the unnecessary expenses of dealing with expired inventory. An inventory management system – like Wasp’s Inventory Control – is one way for businesses to keep track, not only of where inventory is located, but also key information like expiration dates. Lesson: Track goods to avoid unnecessary expenses caused by expired inventory.   What lessons have you learned from CNBC’s The Profit with Marcus Lemonis? Leave a comment and let us know.