Minimum Order Quantity

A minimum order quantity, or MOQ, is a manufacturing term.  It refers to the lowest number of units that must be purchased at one time and can either be set based on cost or volume. Manufacturers or suppliers often use this technical term to describe a production run. By determining the minimum amount of product, they are willing to supply or manufacture in a single order, sellers can optimize their operations.

Often people starting out in manufacturing don’t understand that MOQ’s are not the most important thing to ask a potential manufacturing partner, and a consistent volume that engages full-time manufacturing teams year-round is more essential. In this post we will break down the concept of a MOQ, why it is often the thing people ask about (but they shouldn’t) and how to make the determination of their production output to ensure you and the manufacturing partner are a good fit. 

Why Is Minimum Order Quantity Important?

MOQs are usually used by suppliers for one reason: generating profit from the sale of a service or product. After accounting for overhead and other recurring costs, it can take a large volume to break even when a supplier sells products with a minimal markup or narrow margins.

HKTDC.com provides the following examples of MOQ:

MOQ for manufacturers: If a manufacturer sets his MOQ as 1,000 units, that means buyers must place an order of at least 1,000 units of inventory at a time.

MOQ for wholesale or retail partnerships: if a brand has an MOQ requirement, then the wholesale or retail partner will have to place an order of at least 50 units or $500 worth of product to be purchased together.

In some cases, suppliers are flexible and can change the MOQ. In cases of long-term partnerships between suppliers and retailers, it is likely to have negotiations on altering MOQ.

There are no fixed rules for MOQs or a fixed MOQ for all – every supplier and business type may have different setups.”

Why Do Suppliers & Some Manufacturers Use Minimum Order Quantity (MOQ)?

MOQ is determined differently by different industries for a variety of reasons. Manufacturing businesses may have considerable up-front costs if they have to set up a production. In the absence of sales to cover those costs, the product isn’t worthwhile.

According to Netsuite:

“For suppliers and buyers, minimum order quantities can have several significant benefits. When managed well, the MOQ can be an important inventory control measure and keep costs down for buyers and keep profit margins in the black for suppliers.”

Minimum Order Quantity and China 

When establishing a manufacturing operation in China, you will likely be asked for a minimum order quantity. Chinese manufacturers/suppliers rarely accept a purchase order unless the buyer agrees to the minimum order quantity.  Manufacturers looking to establish a startup operation are often attracted to these lower minimum order quantities. Cogoport, however, views low MOQs from Chinese manufacturing partners as a red flag, not an advantage.

“If the China minimum order quantity you are being offered is very low, be wary of the supplier. A low MOQ will almost certainly mean that the products will be of a substandard quality and have poor safety standards. It might also translate to poor customer service. “

When Starting a Manufacturing Operation with a Nearshore Manufacturing Partner, the MOQ Is Not the Most Important Factor

For nearshore manufacturing to be effective, it must engage full-time manufacturing teams all year long. Although you may only be producing a few items a month, if your production runs smoothly and your teams are engaged, your investment and profits will be higher; this is especially true for complex products.

The cost of “short runs” or products that require simple, machine-based production is usually higher for both the supplier and the customer, as the client may have to make a large up-front investment (labor, equipment, supply chain management) that makes it impossible for them to reap the benefits. If your product is easy to manufacture, this is especially true. Moreover, some manufacturers may charge you a premium price if you have reached your MOQ or may stop production if you have met your first MOQ.  In addition, maintaining consistent volume will allow you to determine your overhead and production costs more accurately.

If you don’t have a MOQ in nearshore manufacturing, you can take advantage of Maquiladoras. Maquiladoras in Mexico provide many advantages to businesses outsourcing their manufacturing needs in Mexico. Consistent volume production also allows you to utilize this approach in nearshore manufacturing.  As a result of cost competition or labor availability, these requirements may arise. 

Maquiladoras also offer the following benefits:

  • Unlimited duty-free imports
  • Unlimited foreign capital investment
  • Limitless options for type or amount of product that can be manufactured
  • Reduced manufacturing costs
  • High-quality product
  • Reduced transport time and cost (specifically in comparison to manufacturing in eastern countries)


Conclusion: Beware of Manufacturers With Low Minimum Order Requirements

Manufacturers with surprisingly low minimum order requirements should be questioned. You may not comply with industry or safety standards, and your product may be of poor quality. If your product or production operation is poor, the savings you may gain are not worth it.

We at NovaLink believe the best way to benefit manufacturers is to have a consistent volume of production and a highly engaged production staff. If you are looking to start a manufacturing operation that can maintain a consistent volume and can enlist a professional team for a long period of time, then you should consider manufacturing in Mexico with a nearshore partner like NovaLink.