Overcoming minimum order quantity (MOQ) challenges

What is a minimum order quantity (MOQ), and how do you overcome its challenges?  

ABC, ERP, EOQ, JIT… acronyms are everywhere in inventory and supply chain management – including MOQ. So what does MOQ mean, and what’s the minimum order quantity definition in practice? 

What does MOQ mean?

MOQ means minimum order quantity. A minimum order quantity is the lowest amount a supplier will accept for an order. It can be based units, value, or weight for single items or a range of items.

Why do suppliers set MOQs?

Suppliers might need to set up a production run to produce a specific quantity, so they don’t end up with costly or wasteful extra stock they can’t sell. MOQs vary depending on product, supplier and industry, but they are common in manufacturing and wholesale businesses. 

Suppliers use MOQs as they are more cost-effective and increase sales margins. If your supplier’s trying to remain competitive by selling products with minimal markup, selling low quantities could cause them to lose money. The minimum order quantity helps them to ensure they are at least breaking even on their orders.  

There are other reasons suppliers set MOQs. Small orders can be expensive to process because the supplier still has to pick, pack, invoice, handle, and ship them, regardless of the order size. In many cases, transport, administration, and handling costs remain broadly similar whether you buy a little or a lot. MOQs protect their margins and make each order commercially viable.

For manufacturers, MOQs can also reflect production realities. A supplier might need to run a machine for a minimum batch size, buy raw materials in fixed quantities, or fill a pallet, container, or vehicle to make the shipment worthwhile. That’s why an MOQ is not always just a pricing tactic. In many cases, it’s built into the supplier’s operations.

MOQ vs EOQ: What’s the difference?

MOQs and EOQs are often confused, but they aren’t the same. An MOQ is the minimum order quantity set by the supplier, while EOQ, or economic order quantity, is the order quantity that minimizes the buyer’s total inventory costs (cost of ordering and carrying stock). In short, MOQ is the supplier’s rule, and EOQ is the buyer’s ideal quantity.

Understanding the difference between MOQs and EOQs is important because buyers often need to balance the supplier’s minimum order quantity against the quantity they would normally order based on demand, lead time, and stockholding costs. When an MOQ is much higher than an EOQ, it increases the risk of excess tock and tied-up working capital.

MOQs and their impact on inventory 

Minimum order quantities, values and weights are a common challenge for inventory planners and purchasers. If you have only one supplier for a particular item, you‘ll be bound by their MOQ, which may mean you end up ordering more stock than you need. If you have multiple suppliers for the same product, they may have different MOQs, so you need to determine which one is best to meet your needs.

Suppliers with high MOQs could lead you to increase your average inventory levels, which consequently increases holding costs. This also ties up working capital and increases the risk of excess stock becoming obsolete. You can read more about managing excess stock in our blog post.  

However, high MOQs can be beneficial because they can reduce administration and ordering costs, since you won’t need to send as many orders. Additionally, buying in bulk usually comes with a lower unit cost, bringing cost savings. You also reduce the risk of stock-outs by holding more stock. However, this increases the risk of having excess stock.  

Lower MOQs allow you to hold lower inventory levels and reduce working capital tied up in stock. It also reduces the risk of stock becoming obsolete.  

Conversely, you might need to place more orders or carry safety or buffer stock.  

This means, it’s essential to understand the impact supplier MOQs could have on your inventory levels. You should always aim to find the optimal level of inventory where you have enough stock to meet demand, with some safety or buffer stock, but without investing capital in unnecessary excess stock that could become obsolete.  

For example, you need to place an order for item A from your main supplier, but realize that you’re below their minimum order quantity.  

You add more of item A, and, even though there’s no forecasted demand, order some of item B to bump up your quota and then top off the order with some of item C to hit the magic MOQ number.  

On the plus side, you’ve hit the minimum order requirement and ordered the all-important A items you need. However, you now have unnecessary stock of items B and C taking up space in your warehouse and tying up working capital. 

To make things worse, when your ordering window rolls around the following week, you realize that you need to go back to that supplier and place an order for item D – starting the process over again!

So, how do you find the balance between the MOQ and the quantity you actually need? 

How to assess whether an MOQ is too high

A simple way to assess an MOQ is to compare it to what you would normally order based on historical and forecasted demand, lead time, and order frequency. Also, ensure you’re on the same page regarding the MOQ requirements. Does the MOQ relate to the unit value of a single product, a box, a pallet, or a container, or do they require a minimum weight?

For example, if you typically sell 100 units a month and place an order every four weeks, your unconstrained order quantity might be around 100 units, plus a little safety stock.

If your supplier’s MOQ is 300 units, you can still place the order, but you are buying the equivalent of three months of demand. That might reduce your unit price and ordering frequency, but it will increase average inventory and holding costs and tie up more working capital than you need. If demand drops or shifts, you also increase the risk of excess and obsolete stock.

You might decide that the MOQ is still acceptable if the extra stock is manageable and the commercial benefit is worthwhile. If it isn’t, it may be time to renegotiate, change suppliers, or use technology to identify the best way to fill the order with items that already have future demand.

We explain more about reorder point planning in our blog ‘How to calculate reorder points’.

Tips for managing minimum order quantities

Set robust replenishment strategies

The best way to manage an MOQ is to treat it as part of a wider replenishment strategy, not just a supplier rule you have to work around at the last minute. Start by comparing each supplier’s MOQ with your actual demand profile, lead times, and service-level targets. If a supplier’s constraints regularly force you to overbuy, it’s worth reviewing whether that supplier is still the right fit.

Maintain master data

It’s also important to keep your supplier master data up to date to make consistent, informed purchasing decisions. If MOQ values, weights, or order rules are inaccurate in your ERP or planning system, you increase the possibility of poor replenishment decisions that create excess stock.

Negotiate where relevant

Some suppliers will be open to lower MOQs, mixed-SKSU orders, value-based thresholds, or different delivery schedules, especially if you can show a consistent purchasing pattern. They might also consider weight-related MOQs instead of value-based ones, and vice versa. If you have multiple suppliers for the same item, compare their MOQs and prices to find the lowest total inventory cost, not the lowest unit cost. This might mean ordering from multiple suppliers, but it will save you money in the long run.

Implement inventory optimization software

Ultimately, MOQs work best when you balance supplier constraints against demand, stockholding costs, and working capital. That’s exactly where inventory optimization software can help, by showing you what you would order without constraints and helping you fill orders with stock you will actually need.

Using software to overcome MOQ inventory challenges 

EazyStock‘s an automated inventory optimization tool that ensures you carry the right stock, in the right quantities, in the right locations, at the right time. EazyStock constantly analyzes all your SKUs based on their demand and supply characteristics, including their place in the product lifecycle, volatility, pick frequency, cost to sell and supplier lead times. The system then calculates which items to stock and produces daily replenishment recommendations. 

EazyStock also calculates your unconstrained order quantity, which is the amount you’d order if there were no MOQs. This means you can negotiate with the supplier or look for one whose MOQs align with your needs, making it easier to balance stock levels and capital expenditure.  

Using EazyStock’s order fill-up functionality to support MOQs  

EazyStock’s order fill-up functionality helps inventory teams meet their suppliers’ contractual minimum order quantities, values or weights cost-effectively. The exclusive functionality is designed to order only stock items with future forecasted demand to keep excess stock under control. 

The functionality kicks in when you’re placing a supplier order and find that you’re short of your minimum order quantity, value or weight. Once you confirm your initial order lines, you can go to that supplier’s profile in EazyStock and click “order fill-up”.

From there, you’ll get a complete list of the SKUs from that supplier, along with the upcoming recommended orders. You can enter the supplier’s order value, volume, or weight, and EazyStock will identify items with upcoming demand that you should order to meet the required amount.  

Once you’re happy with the recommended orders, click “create order lines” and either send the request to your ERP to generate a purchase order or straight to your supplier. This removes the need for manual random selection or guesswork and to order only necessary stock rather than items that could tie up capital as excess or obsolete stock. 

Removing minimum order quantity (MOQ) frustrations

Using our previous example, EazyStock would have identified the future demand for item D and pulled the order forward instead of filling it with items A, B, and C.  

EazyStock users save tons of money by ordering items they‘ll need (immediately or soon without) tying up capital in excess stock. Plus, filling up an order with items with upcoming demand minimizes the number of orders needed with suppliers – saving more money.  

Inventory planners or purchasers will also be more efficient and save time that would be wasted combing through SKUs to determine how to reach an MOQ or cube out a container. 

So, with fewer orders, increased inventory accuracy, less excess stock, more working capital and improved efficiency, it’s easy to understand why the order fill-up functionality is a firm favorite with many EazyStock users. 

Want to learn more? Please contact us for a demo or call us at (844) 416-5000.

Last updated: March 1, 2023