MOQ is so famous. WHY? Below is everything you need to know about MOQ.
What is MOQ?
Minimum Order Quantity (MOQ) – sometimes used as Minimum Quantity Order (MQO) – refers to the minimum quantity of products a producer will accept for an order. It is the number of products, if sold, would pay back the cost of manufacture and, as a minimum, bring the company to break even. It means to maximize efficiency and, in turn, enhance the output.
Importance of MOQ
MOQs are critical for manufacturers because they enable them to run effective and profitable businesses, resulting in good relationships and higher-quality products.
Also, MOQ affects the warehousing space a supplier will need to store the items. As a result, it can affect insurance costs, security, staffing, etc.
Low MOQs mean ordering lesser products. In turn, it may result in higher inventory turnover for the business.
Factors that determine MOQ
Various producers describe MOQ differently. Few base their MOQ on size, color, style, or other variables. However, others consider the total order size despite the size or the color.
Usually, MOQ is high for cheap and simple products like pins, toothpicks, matches, pencils, etc. However, products such as notebooks, glassware, etc., are more expensive and complicated to produce.
More famous and sizable factories with multiple audits and many employees have high MOQ. It is worthless for them to spend time on orders lower than their minimum limit. However, smaller factories can work on low margins happily while offering competitive quality.
Setting a low Minimum Order Quantity means to range between 1 to 50 items. Manufacturers who use low MOQ are usually startup producers trying to create a niche or get into the industry. Also, lower inventory means higher inventory turnover as the producers will run out of stock more quickly.
When the MOQ is low, the socks manufacturer does not need much merchandise readily available for orders as they will receive an order of average size. However, keeping MOQs low can put pressure on your sales team. They will have to work harder and manage more customers.
When producers have high MOQ, they need to keep a considerable amount of stock in hand to cope with the bulk orders. Sizeable inventories can reduce administrative costs, as they help the manufacturer order raw materials less frequently.
However, higher inventories require higher investments to be stuck and occupy larger warehouse space. Furthermore, the stock may become outdated, along with a risk of stock out.
Benefits and Drawbacks of MOQ
Pros of MOQ
The optimum use of MOQ is to secure the unit at its best price. Once you agree upon a MOQ, you can get a great discount. It increases the profit margins per unit.
Better relationship with the supplier
Getting to know your supplier’s capabilities and improving the relationship between you and them are two of the most crucial factors a buyer should consider when purchasing raw materials and products. Understanding the relationship between the buyer’s economic order quantity and the supplier’s inventory can help determine the optimal amount of stock for the buyer.
When there is a Minimum Quantity set for an order, the buyer purchases a certain amount of items from the seller. This manufacturing MOQ might be high, and to get the order, the buyer may have to negotiate and agree to a particular amount that would be lower than the MOQ set. It will only be possible if the seller trusts the buyer or is an old client.
Economies of Scale
Getting the best possible price is why buyers work with suppliers with MOQs often. Doing so can help them save money on their purchases and increase profitability.
Buyers can frequently be confident that they get the lowest price per unit when manufacturers have a MOQ fixed. If savings are high enough, they may mean higher profits for the buyers. The producers offer a bulk discount to ensure sales or improve inventory turnover efficiency.
Lower inventory costs
MOQ manufacturing can often control inventory costs as the buyer will be ready to purchase the inventory. The producer will not have to search for buyers after the manufacturing process. Thus it will be profitable for the manufacturer.
Enhanced cash flow
When order size and product prices are aligned, a MOQ can help the company to get a more consistent, predictable, and healthier cash flow.
Improved profit margins
Manufacturers may better control their profit margins by carefully managing MOQs, ensuring to produce items only when the order is profitable.
Cons of MOQ
Small merchants and company owners may face challenges due to the MOQ as it sets a high standard to start a contract. Thus, many suppliers may have to order more units to meet the MOQ criterion. As a result, the initial costs will increase.
Small companies may find MOQs to be unaffordable. People choose to be cautious when making their first purchases with a business. However, this may mean missing the chances to form long-term relationships with the company.
Financially difficult to set
MOQs usually have to be high to be profitable. Therefore, if a supplier sells things at a low price, it can be challenging for them as most consumers might not be willing to buy large quantities of products.
EOQ or MOQ?
MOQ definition is the number of items that the producer is ready to manufacture and sell at the minimum. It reflects the producer-side. The minimum number of units the manufacturer is willing to sell to the buyer. It helps the producer make a minimum profit or cover the costs. It is unlikely for a manufacturer to earn a profit if the quantity is below MOQ.
Conversely, EOQ is the abbreviation for Economic Order Quantity. It reflects the buyer-side of the order. It means the perfect purchase for a business to make. It is the ideal inventory level a supplier should maintain in the warehouse to avoid going out of stock while simultaneously avoiding excessive spending on storage. The inventory manager computes EOQ to reduce holding costs and surplus stock.
What is fabric MOQ?
MOQ means the Minimum Order Quantity of products a producer will accept to manufacture. Industries will not produce your apparel until you approve the minimum number of items the company has as MOQ.
How do you find low MOQ manufacturers?
Finding low MOQ producers is difficult, as many manufacturers cannot afford to make garments in low quantities. However, they can have high storage costs because of their bulk orders. You may find manufacturers with low MOQ by sourcing companies, visiting countries, surfing the internet, and trade fairs.
Why do manufacturers have MOQ?
Producers establish MOQ because manufacturing a production run costs them a specific amount of money. The MOQ they set assures that they can pay all the manufacturing costs while still making a profit.
How do I ask for MOQ?
You can easily ask about the Minimum Order Quantity from the supplier. However, if you want to negotiate with the producer over it, there are several ways to do that, such as putting some pressure on suppliers, placing a sample order, etc.