In a perfect world, businesses would practice perfect inventory control. They’d have just enough stock to satisfy customer demand without ever wasting resources carrying inventory that’s not needed right away. But businesses don’t exist in a vacuum; they rely on a vast network of suppliers who have their own profits to protect and businesses to run. And that’s why suppliers set their own minimum order quantity (MOQ).
In this article, we’ll define minimum order quantity, then explore everything else you need to know about it, from why MOQ is so important to how to negotiate a lower minimum with a supplier.
What is minimum order quantity?
What is MOQ, exactly? A minimum order quantity is the smallest amount of product a supplier will sell to a business placing an order. For example, when your company places an order for inventory, you may only need 100 units. But your supplier’s MOQ might be 500 units.
What are the reasons for a minimum order quantity of 500 units? Your vendor has determined that this minimum is the absolute least amount of inventory they’re willing to sell to you. Your suppliers have calculated the costs of manufacturing, storing, producing, and transporting these items to you, and have set this MOQ to protect their own bottom line.
One important distinction: Minimum order quantity refers to quantity, not price. When vendors set a price minimum, that’s called a minimum purchase quantity. And when a vendor sets a minimum per individual product, that’s called a minimum per product. It’s not unusual for vendors to implement all three minimums or expect you to satisfy at least one of them each time you place an order.
It’s also important to note that minimum order quantity is not the same as economic order quantity, though the terms are related. Minimum order quantity is the minimum order amount set by a supplier or retailer, while economic order quantity reveals precisely how much of a product a company should order to meet customer demand while minimizing holding and ordering costs.
Why MOQ matters to inventory management
Minimum order quantity is an essential consideration in any effective inventory management strategy. That’s because MOQ determines just how much inventory your business will have to pay for, store, and carry—even if it’s more stock than you need or want. And buying, storing, and potentially not using or selling inventory can hurt your business’s bottom line.
MOQ becomes another factor to juggle as your business determines inventory minimum, chooses warehouse space, creates a budget for the year to come, places regular orders, and more. Of course, MOQ will also affect how your storage space and your cash flow are used on a daily basis.
Usually, a supplier’s minimum order quantities are non-negotiable—although there are some strategies for that. (We’ll cover those later in this article.) But in general, businesses should try to build an inventory strategy around MOQs, so long as they remain fair and sensible.
How to assess whether a supplier’s MOQ is beneficial to your business
While most suppliers implement completely reasonable minimum order quantities, most businesses will want to evaluate their suppliers’ MOQs to make sure they’re not disadvantageous. After all, your business may have several suppliers to choose from, so it can’t hurt to do a little research and make sure you’re getting the best deal.
While you shouldn’t expect your supplier to just ship you whatever you want, whenever you want it, an unreasonably high MOQ isn’t fair to your company, either. That’s especially true if you have a low inventory turnover rate to begin with—leaving you with way too much product on your shelves that you already know could take months or years to use or sell.
To determine whether your supplier’s MOQ makes sense for your business, calculate how much it would cost to meet that MOQ with a typical order. Then, cost out the storing and maintaining that inventory for as long as you believe you’ll need to carry it. If you have the capital, space, and human resources to handle that MOQ, that’s a good sign.
You’ll also want to weigh a supplier’s MOQ against their other offerings. Maybe one supplier’s MOQ is a little high, but they deliver orders the next day, and their prices are great. That’s probably a vendor worth working with, even if you’ve got to up your order just a little bit more than you would like.
How to negotiate a different MOQ with a supplier
If you’ve determined that one of your supplier’s minimum order quantities isn’t beneficial for your business, you could try to negotiate with your vendor. However, most vendors have carefully calculated their own MOQs based on their own profit models; they might not be open to giving discounts or lowering these quantities.
If your team decides negotiating a lower MOQ is worthwhile, you could try one of these methods:
Simply ask for a lower MOQ
If you find your supplier’s minimum order quantity unfavorable enough to switch to another supplier, you might want to negotiate with them before finding a new vendor. If you have a solid relationship with your supplier, they might value your business enough to shave a little bit off their MOQ.
Remember that MOQs are put in place for a reason, so it’s unlikely even the most accommodating suppliers will reduce their MOQ too much. Still, it can’t hurt to ask.
Use the competition as leverage
If you’ve learned of other suppliers that offer the goods you need at a lower MOQ, you can use that information as a negotiating chip. Remember that suppliers set their MOQs based on a myriad of factors that aren’t the same for every business.
See if you can secure a discount
While your supplier might not lower your minimum order quantity, they may be willing to offer a small discount on price, or perhaps waive a shipping fee or something similar.
As always, asking for a discount should be done with tact and respect. When negotiating, think about how you’d like to be approached by a customer asking for a deal themselves.
Ask to receive some inventory later
One negotiation tactic that some businesses find works? Placing and paying for an order all at once, but asking your supplier to send inventory over two or more deliveries. With this compromise, your supplier agrees to “store” your inventory for you—free of cost. You’re still technically meeting the minimum order quantity, but your supplier is breaking up the delivery into more manageable pieces.
Of course, you’d only want to enter an agreement like this with a supplier you really trust. If the supplier were to shutter or never send the rest of your order, you might have trouble recovering your payment.
Inquire about less expensive alternatives
Finally, this negotiating tactic won’t lower your MOQ—but it can help your MOQ cost less. Ask your supplier if there are any less expensive versions of the goods, materials, or products you order from them.
This could help you save money, even if you can’t get your minimum order quantity down. Do keep in mind that changing the quality of your own products can affect the value of what you sell, your customers’ satisfaction, and your brand’s reputation.
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How to calculate your own business’ MOQ
If your business supplies products to other businesses or even to consumers, you may have your own minimum order quantity to enforce. And even if you don’t, understanding how your suppliers calculate their own MOQ can help you better understand those minimums.
While there’s no simple formula to help calculate minimum order quantity, you can use what you already know about your business to calibrate the right quantity. MOQ balances various considerations, including the costs associated with buying, producing, storing, packaging, and shipping raw materials and finished goods.
When calculating your own minimum order quantity, you’ll want to push past your “break-even” point. It should be high enough to allow your business to hit its profit margins but low enough that it entices your customers to place regular orders. What is the right order quantity to make it “worth it” for your business, but convenient enough for your customers? You may want to look at your current average order quantity from your regular customers to help inform your decision, or even gather direct feedback from your customer base.
How inventory management software can help you navigate MOQ
Minimum order quantity is just one of the many inventory considerations businesses need to juggle. Businesses of every size need to balance their suppliers’ minimum order quantity with their own desire to practice tight inventory control, swiftly meeting customer demand without spending too much on inventory.
Fortunately, inventory management software can help you navigate MOQs with ease. That’s because modern inventory software helps you understand what you’ve got, where it is, and how much of it you need. And once you know your inventory inside-out, it’s that much easier to place orders correctly, completely, and confidently.
You can also use inventory management software to alert you when items are running low. When you get an alert that a given item’s stock is dwindling, you can filter your digital inventory by supplier to determine what else you’ll need from this supplier soon. This information can help you meet your supplier’s MOQ without purchasing inventory you just don’t need or won’t need any time soon.
Sortly is top-rated inventory management software that can help get your business organized—today. With Sortly, you can manage all your inventory across multiple locations, instantly know what’s where, and use powerful automation features to make even the most resource-intensive parts of inventory management that much easier.
With features like barcode and QR code scanning, low stock alerts, and customizable reports, companies of all shapes and sizes turn to Sortly to get a handle on their inventory. Ready to digitize your stockroom? Start a free, two-week trial of Sortly absolutely free.