What are Minimum Order Quantities?
The MOQ is the minimum amount of product your supplier is willing to produce for each order. How does the supplier arrive at this number? Why are the MOQ’s so high? In this article we will dive into the Minimum Order Quantity.
Sales are increasing, product is moving, and it’s time to make the leap into overseas manufacturing. You’re looking to increase your margins and understand the financial benefits of relocating your production. After you contact your supplier, you find that your minimum order for your product is 1,000 units. You typically only order 250 units at a time and it’s scary to invest in that much inventory.
Deciding whether your sales can support the inventory required to be purchased.
Typically, when companies are worried about the MOQ’s, they are at a defining point in their business adventure. Right on the cusp of being able to capture the extra margin with overseas production and feel confident that the sales will continue.
There are many factors that determine the MOQ. I’m sure that all manufactures would love to produce products for smaller businesses. In reality, your supplier is typically working with other suppliers. For instance, if you find a great cut/sew supplier, there’s a good chance they will order the material from another local supplier. Sometimes, it is that 2nd supplier that places the minimum on their material. The cut/sew factory agreed to produce 500 units, but the material minimum they have to buy produces 1,000 units. Therefore, our minimum would be 1,000 units so the factory is not left with extra material.
What role does labor play?
Another factor that comes into play with the MOQ is the labor. Many times in the apparel world where you’re printing t-shirts, there is a minimum per print (or style). That’s due to the factory calculating the cost to create and switch each print screen and the amount of labor it takes to run the machine. Even if you bought the same shirt, it’s the printing that has the minimum.
Depending on the materials needed to create your product, the MOQ’s will change. In my experience, I typically see MOQ’s range from 500 all the way up to 3,000 units. You can keep in mind that normally the less expensive products will equate to a higher MOQ.
The MOQ is a tough one to negotiate as you are basically asking the supplier to lose money for the sake of your business. Sometimes with newer companies, suppliers will negotiate the MOQ for the first order and first order only. Maybe you agree on 500 units for the 1st order, and 1,000 units (minimum) after that.
Working with a smaller supplier may help with negotiating the MOQ. However, be aware of suppliers with extremely low MOQ’s. If it sounds too good to be true, it probably is. I’ve heard of people using some of these factories only to find out the quality was nowhere near what they were looking for.
You can also see if there is a way to place your order, and schedule specific ship dates throughout a certain period of time so you aren’t obligated to take the whole order at once. This will help with cash flow and inventory moving forward.
If your company is small and you’re looking to take your production overseas, MOQ’s are something you’re going to have to work with. You can try to negotiate with your supplier and hopefully they work with you and earn your business. They need your business just like you need theirs.