What Is MOQ

Ordering from specific factories and warehouses may need a minimum purchase MOQ.As a result, some customers may be turned away from the manufacturer, supplier, or distributor if they are unable or unwilling to meet the minimum order quantity.

Minimum order quantities are used by certain suppliers, particularly in low-margin or highly specialized businesses, and it’s essential to understand how they function and why they would utilize them. The bottom line may benefit from strictly enforcing minimum order quantities.

Quantity Required To Place An Order (MOQ)

  • Minimum order quantity refers to the minimum number of items purchased in a single transaction. Look at this illustration for a clearer picture of the Minimum Order Quantity concept. Let’s pretend a distributor charges $100 for each widget. There is a $10,000 minimum for orders of 100 or fewer devices from the supplier. 
  • Minimum order quantity may either be set in terms of units or money. This minimum order quantity (MOQ) represents the lowest possible profit that the company may make from a specific purchase. This may include the supplier’s minimum order quantity for raw materials, setup fees, and other administrative charges.
  • Companies often have a minimum order amount set for orders with a single customer. A single t-shirt or head of lettuce sold at a store may make the owner happy, but it usually could be more profitable. They may need to purchase hundreds or thousands of units before selling the goods.
  • The minimum order quantity (MOQ) is used by many manufacturers when selling to wholesalers, who in turn sell it to retailers. This allows customers to pick up a single item or two at the store.

Suppliers often rely on a minimum order quantity (MOQ)

  • Suppliers primarily use minimum order quantities (MOQs) to boost their gross margin (the amount of money they make per unit of product or service sold). A supplier may need very high sales volumes if it offers low markups or margins on its products to achieve profitability after covering fixed costs like rent and salaries.
  • Reasons and procedures for determining the MOQ vary across industries. When a manufacturing firm, for instance, needs to begin a production run, it may face high initial costs. Without sufficient unit sales, it has no return on investment.
  • The additional time and money required to break down and transport half cases are not worth it to a wholesaler or manufacturer. Thus they would rather sell the whole subject at once. If they were shampoo of sale, the minimum order quantity (MOQ) would be 12 units or one case.

There is a large minimum order quantity (MOQ)

For suppliers with high MOQs to meet customer demands, keep a sizable stock of goods in the warehouse at all times. To keep inventory levels low and practice just-in-time inventory management, suppliers may require more time to fill orders. Additional stocking is a drain on working capital and storage space.

Nonetheless, they reduce overhead costs by allowing for fewer frequent purchases of products or raw materials, which may lead to cost reductions in aggregate thanks to the supply chain’s greater use of more diverse materials and component components. Although stock-outs are less likely to occur, there is a greater possibility of obsolescence, especially for commodities like electronics.

Small Minimum Order Quantity (MOQ)

  • Due to the lower average order size, suppliers may keep more inventory for orders with a low minimum order quantity. 
  • This may result in less stock on hand but faster turnover. If your minimum order quantity (MOQ) is too low, it might place undue stress on your sales team. 
  • Ordering more frequently leads to higher administrative costs. If a supplier may lessen the risk of obsolescence by keeping the minimum order quantity low, it may run the danger of running out of stock.
By Shelly Conley