What is MOQ?

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What is MOQ?

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What does MOQ stand for?

MOQ stands for Minimum Order Quantity. It is the smallest volume of a product/material that a supplier or manufacturer is willing to sell to a customer.

More specifically, it refers to the least number of products or units that a supplier is willing to produce at one time for one order.

 

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MOQ; What Is It? What Does It Stand For?

MOQ stands for Minimum Order Quantity. It is the smallest volume of a product/material that a supplier or manufacturer is willing to sell to a customer.

More specifically, it refers to the least number of products or units that a supplier is willing to produce at one time for one order.

Why do suppliers use MOQs?

Everyone needs to make sure they are not selling themselves short, so MOQs are set by suppliers to ensure they are able to cover production costs, ultimately making a profit for themselves. It can also help to reduce the overall cost per unit.

MOQs can vary from supplier to supplier, meaning that different suppliers may have different minimum order quantities. MOQs are usually defined by the number of units that have been produced, however, can sometimes be defined by the order value instead. This differs depending on who you use to produce your goods.

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Why Do Suppliers Use MOQ?

Products that are being shipped around, and handled by various people, are likely to move around in their box. In worst case scenario, the box may be dropped, squished or subjected to collision, which can cause serious damage if the products don’t have the right protection. Dunnage (such as bubble wrap) can be used to protect the products and absorb any shock from getting knocked around.

The Suppliers POV: What are the advantages of mOQs?

For suppliers, there are certain advantages and disadvantages that contribute towards their decision to have a minimum order quantity requirement when selling their products to buyers. Lets explore them the advantages first.

reduce overall costs

By setting MOQs, suppliers can reduce their overall production costs to make the MOQ order by improving productivity and maximising resources. As a result, they can usually offer cheaper pricing for the buyer and increase profits.

Improve customer relationships and retention

All business relationships should be a win-win for both parties. MOQs can cement the relationship due to both the buyer and the supplier getting what they need from the deal which can ultimately lead to repeat purchases. This builds trust and can foster long-term relationships.

Better lead times, increase in sales

Again, the supplier can better manage their time and therefore produce higher numbers, quickly reducing the lead times. Better lead times, along with quicker processes will in turn increase the supplier’s revenue

Improved work flow

Producing fewer products, in larger volumes helps productivity and ultimately a better ran warehouse.

The Suppliers POV: What are the advantages of mOQs?

For suppliers, there are certain advantages and disadvantages that contribute towards their decision to have a minimum order quantity requirement when selling their products to buyers. Lets explore them the advantages first.

reduce overall costs

By setting MOQs, suppliers can reduce their overall production costs to make the MOQ order by improving productivity and maximising resources. As a result, they can usually offer cheaper pricing for the buyer and increase profits.

Improve customer relationships and retention

All business relationships should be a win-win for both parties. MOQs can cement the relationship due to both the buyer and the supplier getting what they need from the deal which can ultimately lead to repeat purchases. This builds trust and can foster long-term relationships.

Better lead times, increase in sales

Again, the supplier can better manage their time and therefore produce higher numbers, quickly reducing the lead times. Better lead times, along with quicker processes will in turn increase the supplier’s revenue

Improved work flow

Producing fewer products, in larger volumes helps productivity and ultimately a better ran warehouse.

The Suppliers POV: What are the disadvantages of MOQs?

Now that we have explored the advantages of MOQs, lets explore the disadvantages.

Competitive

Having an MOQ can put off buyers who only need a set number of products produced or financially can’t stretch to the minimum order quantities. This can reduce in lost sales/revenue for the supplier

Relationships

We talked about the fact that MOQs can strengthen the relationship between the supplier and buyer, but it can also strain relationships should the MOQ not work for both parties.

Stock Holding

The supplier needs to hold more stock until the order is complete. It’s very unlikely that the buyer will want the order shipped until it’s been completed in full. This may well increase the supplier’s warehousing costs and prevent other orders from being held at the facility.

The Suppliers POV: What are the disadvantages of MOQs?

Now that we have explored the advantages of MOQs, lets explore the disadvantages.

Competitive

Having an MOQ can put off buyers who only need a set number of products produced or financially can’t stretch to the minimum order quantities. This can reduce in lost sales/revenue for the supplier

Relationships

We talked about the fact that MOQs can strengthen the relationship between the supplier and buyer, but it can also strain relationships should the MOQ not work for both parties.

Stock Holding

The supplier needs to hold more stock until the order is complete. It’s very unlikely that the buyer will want the order shipped until it’s been completed in full. This may well increase the supplier’s warehousing costs and prevent other orders from being held at the facility.

The Buyers POV: What are the advantages of mOQs?

Now, lets dig into the advantages of an MOQ if you’re a buyer looking to purchase products from a seller.

Better Pricing

Who doesn’t want to save on costs? By placing larger orders, you often benefit from lower pricing. The savings can be significant, which can in turn help drive larger margins.

Better Quality products

Producing large quantities and spending more time on a project can help from a quality point of view. After all they are concentrating on one task, and the larger the order the longer is spent on the project

Establish better long term relationships with the supplier

Meeting MOQ’s consistently can help improve the relationship, which in turn can help with more favorable terms and pricing. It may also help reduce the MOQs when placing repeat purchases.

The Buyers POV: What are the advantages of mOQs?

Now, lets dig into the advantages of an MOQ if you’re a buyer looking to purchase products from a seller.

Better Pricing

Who doesn’t want to save on costs? By placing larger orders, you often benefit from lower pricing. The savings can be significant, which can in turn help drive larger margins.

Better Quality products

Producing large quantities and spending more time on a project can help from a quality point of view. After all they are concentrating on one task, and the larger the order the longer is spent on the project

Establish better long term relationships with the supplier

Meeting MOQ’s consistently can help improve the relationship, which in turn can help with more favorable terms and pricing. It may also help reduce the MOQs when placing repeat purchases.

The Buyers POV: What are the disadvantages of MOQs?

And finally, lets explore the disadvantages of an MOQ when it comes to being a buyer.

Risk

Should your new products fail to sell, due to the volume you’ve needed to purchase you are left with a dilemma. One of the main risks associated with a large MOQ.

Cash flow

You not only need to increase your overall costs to meet a minimum order quantity, you often need to make larger upfront payments. This can tie up capital and hinder other parts of the business, this can be especially difficult for new, upcoming businesses.

Warehousing challenges

The higher the MOQ, the more products need storing, in turn occurring higher warehousing costs. The slower the turnover of the products, the less productive the warehouse can be.

The Buyers POV: What are the disadvantages of MOQs?

And finally, lets explore the disadvantages of an MOQ when it comes to being a buyer.

Risk

Should your new products fail to sell, due to the volume you’ve needed to purchase you are left with a dilemma. One of the main risks associated with a large MOQ.

Cash flow

You not only need to increase your overall costs to meet a minimum order quantity, you often need to make larger upfront payments. This can tie up capital and hinder other parts of the business, this can be especially difficult for new, upcoming businesses.

Warehousing challenges

The higher the MOQ, the more products need storing, in turn occurring higher warehousing costs. The slower the turnover of the products, the less productive the warehouse can be.

How To Calculate MOQs

How to calculate your MOQ..

Inventory holding – Calculate the cost of storing the goods in your warehouse/outsourced 3pl. This will help you understand the financial implications of ordering a large stock holding and meeting an MOQ. It can guide you what the maximum you are prepared to purchase.

Demand and Forecasting – Using previous sales data, and inventory management software can help determine how many orders you usually ship, along with seasonality and trends. Competitor analysis can also determine if your forecasting could look different to previous years and give a good indication of what you can reasonably sell, in what period. The last thing you need is to hold years of stock which isn’t moving.

How to calculate your MOQ…

Inventory holding

Calculate the cost of storing the goods in your warehouse/outsourced 3pl. This will help you understand the financial implications of ordering a large stock holding and meeting an MOQ. It can guide you what the maximum you are prepared to purchase.

Demand and Forecasting

Using previous sales data, and inventory management software can help determine how many orders you usually ship, along with seasonality and trends. Competitor analysis can also determine if your forecasting could look different to previous years and give a good indication of what you can reasonably sell, in what period. The last thing you need is to hold years of stock which isn’t moving.

How to calculate your MOQ…

Suppliers MOQ

You’ll need to determine what the supplier’s MOQs are and if they can be negotiated. They may change this depending on workload, time of the year and how much they want the business.

Break Point

Determining how many products you need to sell to simply break even will help when choosing the best MOQ.

Discounts

Suppliers generally reduce the cost of the items as they produce more goods, meaning the higher the MOQ, the lower the cost per unit. This can help determine the financial impact of increasing your order.

By ensuring that each of these points have been analysed in detail, you can hopefully create a realistic and viable MOQ that works for your business and the supplier.

Suppliers MOQ – You’ll need to determine what the supplier’s MOQs are and if they can be negotiated. They may change this depending on workload, time of the year and how much they want the business.

Break Point – Determining how many products you need to sell to simply break even will help when choosing the best MOQ.

Discounts – Suppliers generally reduce the cost of the items as they produce more goods, meaning the higher the MOQ, the lower the cost per unit. This can help determine the financial impact of increasing your order.

By ensuring that each of these points have been analysed in detail, you can hopefully create a realistic and viable MOQ that works for your business and the supplier.

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What factors affect MOQs?

Production Costs

Suppliers will consider their costs when determining their MOQ. The higher the cost, typically means the higher the minimum order quantity

capacity for production

The more productive a supplier can be, the more favorable the cost and the more flexible they can be when it comes to setting an MOQ

Scale

The more you buy from a seller, the cheaper the overall order cost comes to

Demand

The more demand there is for a particular product, the larger the MOQ that can be set from a supplier point of view

Skill set/machinery needed

The complexity of the work can determine the MOQ, to cover the cost of additional workforce, or specialist equipment

Competition

The level of competition in the sector/market can impact the minimum order requirements.

Workload

Should the supplier have availability to complete the work, they may reduce the MOQs due to wanting the business.

Expiration dates

For products that have a limited shelf life, there may be a need to ensure higher MOQs.

Expiration dates

The better the relationship with the supplier, the more beneficial the negotiation can be. It can result in more flexibility, and better terms as well as the MOQ you require.

Compliance, testing, Lead time and currency rates can all impact your MOQ

What factors affect MOQs?

Production Costs

Suppliers will consider their costs when determining their MOQ. The higher the cost, typically means the higher the minimum order quantity

capacity for production

The more productive a supplier can be, the more favorable the cost and the more flexible they can be when it comes to setting an MOQ

Scale

The more you buy from a seller, the cheaper the overall order cost comes to

Demand

The more demand there is for a particular product, the larger the MOQ that can be set from a supplier point of view

Skill set/machinery needed

The complexity of the work can determine the MOQ, to cover the cost of additional workforce, or specialist equipment

Competition

The level of competition in the sector/market can impact the minimum order requirements.

Workload

Should the supplier have availability to complete the work, they may reduce the MOQs due to wanting the business.

Expiration dates

For products that have a limited shelf life, there may be a need to ensure higher MOQs.

Expiration dates

The better the relationship with the supplier, the more beneficial the negotiation can be. It can result in more flexibility, and better terms as well as the MOQ you require.

Compliance, testing, Lead time and currency rates can all impact your MOQ

How To Best Manage Your MOQs and How Outsourcing Your Fulfilment Can Help

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