January 7, 2023
Manufacturing -
Understanding Minimum Order Quantities (MOQ) | OneLink Holdings
As a new buyer, it is important to learn about minimum order quantities so that you can understand the impact on your business. Here’s everything you need to know!
The development of a product involves a manufacturing process, which can be costly and time-consuming. To make the most out of this process, manufacturers often require their customers to place orders with a specific minimum quantity (MOQ). This means that clients must purchase at least the MOQ given by the manufacturer before they can place an order. But what is an MOQ, and why do manufacturers have them? Let’s find out.
What is an MOQ?
An MOQ is the lowest number of products that a customer must purchase to place an order with a manufacturer. The actual number may vary depending on the product and its respective manufacturing process; for example, some items may require larger quantities than others due to higher production costs. Garments/apparel, accessories and packaging can often have MOQ’s in the thousands for one product. When setting a MOQ, manufacturers will consider overhead costs, sales volumes and profit per unit to determine the best MOQ.
As such, it’s important to understand the MOQ requirements when ordering from any given manufacturer.
Why do Manufacturers Have MOQs?
Manufacturers have several reasons for setting an MOQ limit on their products. Primarily, it helps them streamline production costs by having bulk orders of certain items instead of multiple small orders. Factors such as different colour ranges, sizes, materials and finishes can alter a manufacturers MOQ.
For example, you could want to manufacture a t-shirt in two different colours: black and white. meaning the manufacturing company would put a MOQ on both individual colours. You could therefore have a MOQ of 1000 black t-shirts and 1000 white t-shirts, when you only wanted a MOQ of 1000 for black and white combined. Large MOQ’s may not be financially viable for smaller businesses who are just starting out, which is where a sourcing company can come in handy to find other suppliers or negotiate with factories.
Furthermore, it gives them greater control over their inventory and allows them to better manage their resources. When selling small volumes of products, it can take a while to reach a breakeven point for manufacturers due to overhead and recurring costs they face. This is especially apparent when selling products with minimal markup or on tight margins. Additionally, it helps protect manufacturers from having to produce too many items that may not sell or be returned after purchase.
Why do MOQ Vary between Manufacturers?
Because each manufacturer has its own production processes, labour costs, and overhead expenses, no two companies will have exactly the same MOQ policy. In some cases, one company may require more products per order than another in order to achieve maximum efficiency in their production line. Similarly, some companies may offer lower prices for larger orders since they are able to take advantage of economies of scale when producing goods in bulk quantities.
How do you find out what your expected MOQ should be?
Unfortunately, you won’t find a guide that lists the different MOQ’s for the different products. This is due to manufacturers setting their own MOQ’s for their manufactured goods. For example, one manufacturer could sell the same product as another but can have a higher MOQ than the other competitors. To find what your MOQ will be, you will need to speak to the manufacturing company directly.
How Does MOQ Impact Inventory?
Minimum order quantities are a significant factor in inventory management – they can influence the financial, logistical and administrative aspects of a business. Depending on the minimum order quantity required by suppliers, it can limit the ability of businesses to react quickly to changes in customer demand. Setting minimum order quantities can represent a cost savings for a business, as it allows for bulk discounts from vendors that would be more costly if orders were smaller.
However, minimums can also result in unwanted inventory levels or increased storage costs, as well as higher overhead from accounting transactions and environmental costs due to transportation. It’s important for companies to consider all of these factors when deciding on minimum order quantities in order to optimize their inventory management structure.
How to deal with MOQ as a small business
To get around MOQ’s as a small business, start small with one or two product designs (including colours) to avoid multiple, large MOQ’s, use a monetary budget instead of using MOQ requirements as a budget and engage the professional help of a sourcing company.
Start with one or two products
When starting out, invest in one or two main products to meet your MOQ requirements instead of creating different styles and colours of the same product. To determine what style or colour to manufacture, get feedback from family and friends. Once you have strong market power and you’ve established a solid relationship with the manufacturer, you can look to expand your product range.
Use a budget instead of MOQ requirements
The biggest mistake a small business can do when placing their first orders is focus on the MOQ requirement rather than their own budget. Setting a budget will allow you to work backwards in determining how many units can be purchased with that budget. This will then allow you to select a manufacturer with a suitable MOQ based on your budget.
Engage a sourcing company
Using a sourcing company who is familiar in the countries you want to manufacture in will make the process a lot easier. The sourcing company will be able to find quality, reliable manufacturers in those countries, meeting the MOQ requirements you have set, keeping in mind with the budget set.
OneLink Holdings can help with this process. We can negotiate your terms with the manufacturer, improve the pricing and draft necessary contracts. We may also be able to negotiate a lower MOQ, based off relationships we have built with certain manufacturers we use regularly.
Minimum Order Quantities (MOQ) are important considerations when ordering from a manufacturer. By understanding the requirements set forth by each company you work with and how they differ from one another you can ensure that your orders are filled quickly and cost-effectively while still meeting your needs as a client or marketer. With this knowledge you can make informed decisions about which suppliers will provide you with optimal service at competitive prices – leading to long-term relationships that benefit everyone involved!
Written By
OneLink Holdings team
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