Manufacturers and suppliers help keep supply chains moving by supplying products to their customers. With so many retailers, e-commerce stores, and warehouses ordering supplies, they establish minimum order quantities (MOQs) that are available. These MOQs allow manufacturers greater control of their production lines, inventory, and manufacturing costs.
What are MOQs?
A MOQ is a product purchase concept where a manufacturer, supplier, or distributor will decide on the fewest unit quantity that they are willing to sell. For example, you may want to buy 50 units of a product. However, the manufacturer requires that you purchase 100 units at the minimum.
Manufacturers and suppliers use MOQs to ensure that they can cover the costs of production, shipping, and labor. Based on the example, a manufacturer who decided to sell less than the 100 units may find themselves wasting money and labor resources without being able to turn a profit.
How MOQs Impact Warehouse Inventory
When ordering warehouse inventory, you want to ensure you have enough products on hand for orders without overstocking supplies. If you have too little inventory, you deal with backorders and unsatisfied customers. If you have too much inventory, this leads to money wasted on warehouse overhead and labor while running into the issue of products going obsolete on shelves. You also use up valuable warehouse space that cannot be stocked with other products.
MOQs can create issues with balancing warehouse inventory. If you are dealing with a low MOQ but have a high product turnover, you may find yourself ordering shipments more frequently, increasing shipping costs. If you have a high MOQ from a manufacturer, you could strain your budget on too many products that are slow sellers while dealing with obsolete products and warehouse overhead.
Determining MOQs for Your Warehouse
There are several factors in trying to determine the best way to handle MOQS for your supply chains. First, you need to understand customer demand and how that might fluctuate currently and in the future. You should also consider your warehouse holding costs and shipping schedule.
Once you figure out these numbers and how many units your warehouse needs, you can sit down with the manufacturer or supplier and renegotiate your purchase order contracts. You may be able to get them to adjust their MOQs for your company. Of course, the manufacturer or supplier may try to get you to compromise on certain factors, such as lowering the minimum purchase quantity on only products of lesser quality or requiring you to pay an extra cost.
You’ll need to decide whether these compromises are best for your company and customers. If the manufacturer will not budge on their MOQs, you may have to adjust your order schedule. By either increasing or decreasing the frequency of your inventory ordering, you can get the products shipped at specific times of the week or month to ensure you have enough products without overstocking.
Your Warehousing Provider
Here at American Warehouse, Inc., we are a 3PL that provides warehouse, distribution, and fulfillment services for local and international businesses. We provide logistical solutions to companies to streamline their supply chains and keep products moving to customers. Find out more about our services by contacting us today.