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    1. CWayCross is offline

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      #1

      Learn how a supplier calculates MOQ

      Hello everyone. I have been on the forum for a while and in the trading business for several years. One of the questions Iíve been reading lately is ďWhat is a minimum order quantity (MOQ)?Ē and I just thought Iíd clarify the term MOQ for everyone who needs to know.

      A minimum order quantity sets the bar for your purchase. The MOQ is the lowest number of items you can buy in a given purchase.

      Suppliers create minimum order quantities to ensure they can stay in business. You may also see a MOQ referred to as an EOQ or economic order quantity by a supplier.

      What determines the MOQ?

      ē The MOQ is based on storage costs, shipping fees, taxes and even insurance for the supplier
      ē The MOQ or EOQ is calculated using pretty basic math, although the textbook EOQ equation isnít much more than a basic starting point for determining a supplierís actual minimum order standards.

      For reference purposes, though, here it is:

      o √2*A*Cp/Ch

       A= Annual Demand
       Cp = Cost to Place Single Order
       Ch = Cost to Hold One Unit of Inventory Annually

      A good example of this formula in play:

      Buyer A runs an online business for auto parts. Annual demand for rear main seals is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50.

      In order to calculate the MOQ/EOQ, Buyer A executes the following formula:

      √2*16,000*$50/$2.50 = 800 units per order

      In order for this equation to be valid, Buyer A is assuming that:

      1. The cost of every order is constant
      2. The demand for this product is constant
      3. The lead time for this product is fixed
      4. The price that Buyer A pays for each unit is constant
      5. Stock replenishment is instant and the entire batch is shipped all at once

      From this equation and the explanation, you can see why itís only a theoretical equation. MOQ is calculated with many more variables, and as a result changes as needed.

      Wholesale and distribution is about operating in bulk. If youíre not willing to operate within a companyís MOQ, then you need to look elsewhere for a place that offers either no MOQ or a very small MOQ. If you approach a company that has no MOQ set, expect to pay much higher prices for the stock you need.

      Like the equation above states, a productís MOQ is not a number pulled out of thin air. By setting an MOQ, the supplier knows how much they can sell at one time and make a profit.

      I hope this short explanation on minimum order quantity will be helpful to those who need it.
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    2. Forestdawn's Avatar
      Forestdawn is offline

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      #2
      Great explanation!
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    3. Hazelnut is offline

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      #3
      Let me see if I understand. A minimum order quantity is how many items the supplier needs to sell to cover the minimum cost of purchasing, storing, and shipping a product while retaining the ability to make a profit on the items that they sell.

    4. CWayCross is offline

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      #4
      Yes Hazelnut that is exactly what MOQ is

      The supplier has to figure out a number so they can avoid wasting time, labor and materials.

      The MOQ will also help a supplier determine a stable shipping rate. If everyone was allowed to choose 1, 5 or 500 at their leisure then the shipping costs would change with each order.

      Happy people are finding the info helpful.

    5. Hazelnut is offline

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      #5
      The minimum order quantity (MOQ) allows the distributor to recoup their expenses.

      Think about how much you need to sell to make a profit this month. Thatís exactly what your distributors are thinking when they determine MOQ for an item.

    6. Oregon_Ed is offline

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      #6
      I have been able to negotiate a lower MOQ before with a supplier. Sometimes I think the supplier puts too high a number on the MOQ, especially for first time users.

    7. CWayCross is offline

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      #7
      As a first time customer an MOQ can be pretty high. There is no harm in asking for a lower amount order, but don’t get mad if the supplier cannot change the MOQ for you as a first time buyer.

    8. Bobdownunder is offline

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      #8
      Really appreciate all the info about MOQ. Thanks so much!

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