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Productivity / Growth

Product sourcing: Minimum Order Quantity

When ordering products from suppliers, generally there will be a Minimum Order Quantity (MOQ). Find out more.

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In a general sense and for ease of explanation, there are two types of buyer:

  1. Those ordering large quantities in the thousands or container loads.
  2. Those ordering a few pieces for resale. For an overseas factory in particular, “a few” could mean several      hundred pieces.

Why is there a Minimum Order Quantity (MOQ)?

The first thing a buyer must understand is the reason a supplier has an MOQ.

As an example, let’s say a factory makes coats. That factory needs to buy raw materials from their supplier. It may be that they need to buy stock of material (inner and outer), padding, buttons, zipper, as well as anything else that goes into a coat.

Let’s say the supplier of the material will only sell a minimum of 2000 yards of fabric to the factory, which will allow them to make 500 coats. Then the factory may make their MOQ 500 pieces to reflect the amount of material they need to buy. (A factory will not want to retain a lot of surplus stock as it is effectively tied up money they cannot use, especially if it is an uncommon type or colour of material.)

"In recent years there are more direct suppliers offering smaller quantities… but you have to be prepared to do some searching. "

But there may still be an instance where that buyer may only want 200 coats. In this case they have a couple of options.

  • Try to negotiate with the supplier. The buyer may be charged more but it could still be a suitable alternative.
  • Look for a different supplier. This can also be dependent on the materials. If I want black coats, it may be more easy to request a lower quantity than if I wanted a purple coat, which might not be so easy, as the factory would need to source that fabric in a smaller quantity.

Challenges for small volume buyers

For a small volume buyer the difficulty is that, in many instances, they will find it hard to find a factory prepared to make very small quantities. The factory set up with production lines is really not meant to cater for small quantities. It is partly the economies of larger scale manufacturing that allows them to offer such good pricing.

That is why you will find many smaller Australian companies still buying stock through local wholesalers. While their pricing may not be as cheap, they do have some advantages as well, such as getting better deals by buying in larger quantities.

And if they are local, they may already have stock and will have already covered the transport and import documentation. This will however limit your options to what is already available rather than having something made to your specific demand.

The good news is that in recent years there are more direct suppliers offering smaller quantities than before, but you have to be prepared to do some searching and it won’t cover every product. 

What are your thoughts on a Minimum Order Quantity?

Brian Mallyon

assists small business by helping them to better understand the process of sourcing products from overseas.

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