When you are buying a product, of course, you have met a seller who provides a low unit price of products with the condition that the minimum quantity of product purchase must be fulfilled. Implementing the minimum amount of product purchase becomes a strategy that sellers carry out to make the products they offer sell faster. This term is familiar in the business with Minimum Order Quantity or MOQ. In addition, to increase the MOQ, you can use procurement software as one of the purchasing software to reduce waste in shopping. What is MOQ like in selling activities? Get to know more about MOQ!
Table of Content:
Table of Content
MOQ Definition
Minimum Order Quantity or MOQ is the amount of purchasing goods that the seller sets. In other words, MOQ is the minimum limit of orders that the buyer must fulfill. MOQ is one of the important things to know in the business so that selling activities can bring profits. A minimum order quantity is applied to make the requested orders by the buyer cover production costs. Not only that, MOQ is used to maintain the product’s value.
Also read: Retained Earnings: How to Calculate and Make a Report
Minimum Order Quantity Benefits
Once you know the MOQ definition, of course, you must understand the MOQ benefits. What are the benefits that the seller will obtain as the aftermath of minimum order quantity implementation? Check out the explanation of each of its benefits below!
Quickly reducing product stock
No seller does not want their product stock to sell out immediately. Usually, sellers buy product stock from producers in large quantities. The manufacturer, of course, sets the minimal purchases of products to the seller. Why do manufacturers do this? This is because the manufacturer must get the benefit from the production process. The manufacturer must sell in large quantities so that the product stock that the produced immediately runs out and can start the next production.
Controlling product stock
Besides being a moment to reduce the available product stock quickly, another benefit obtained by sellers for the implementation of minimum order quantity is the ease of controlling the product stock in the warehouse. Controlling the product stock will avoid product deposition in the warehouse. Deposition of product in the warehouse because these items are difficult to sell. The longer the product is stored in the warehouse, it will cause a decrease in the seller’s profit. This is because the product value will continue to decrease. You can use an inventory management system to manage and supervise stock transfers efficiently.
Increase profits and optimize cash flow
Smooth product sales will have an impact on the increasing seller’s profit. The increase of the seller’s profit will certainly optimize the business’s cash flow. Every business wants its cash flow to be smooth. The application of minimum order quantity techniques in selling activities not only increases sellers’ profits, but MOQ can also optimize business cash flow. To get an accurate cash flow calculation, you can use the accounting system.
Also read: Tips to Better Control Your Purchasing Activities
MOQ Types
It is incomplete if you do not know the types of minimum order quantity. MOQ is generally divided into two types, namely Soft MOQ and Hard MOQ. What is the difference between these two types? Get to know the explanation of each type of MOQ!
Soft MOQ
This type of minimum order quantity is flexible. In this case, flexible means that the minimum order quantity to be purchased can negotiated between the seller and buyer. Usually, the buyer will set the amount of purchase. In addition, the implementation of this type is sometimes not applied to certain products or times.
Hard MOQ
Unlike the previous type of minimum order quantity, in this Soft Minimum order quantity, the determination of minimum order quantity can no longer be negotiated by the buyer. If the buyer cannot meet the minimum order quantity of products determined by the seller, then the seller will refuse the buyer’s request.
How to Calculate MOQ?
Proper minimum order quantity calculation will be the key for the business to profit from their product. Not only that, but the seller can also easily control the available product stock. To calculate the MOQ correctly, you can use the Economic Order Quantity or EOQ formula as follows:
EOQ=2XRXSPXI
Formula description:
- R is the number of items that must be fulfilled in each order.
- S is the fee for each booking. This includes shipping costs and transportation costs.
- P is the purchase price for each product unit.
- I is the cost in the process of storing goods after the order is made. The cost, in this case, is calculated in percentage (%) for each product.
Here is an example of the minimum order quantity calculation using the formula above:
Easy Solution Pte Ltd. needs 240,000 pieces of tables. Each table unit costs 2,000. There is an additional cost of 150,000 and storage fees of 25% per item to order.
EOQ=2 x 240,000 x 150,000 x 2,000 x 25%
EOQ=144.000.000
= 12,000 units
So, the minimum number for one booking is 12,000 units.
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Conclusion
The explanation above is expected to provide new insights for readers about Minimum Order Quantity or MOQ. The implementation of minimum order quantity becomes a strategy carried out by sellers so that the products they offer can be sold out immediately. There are two types of MOQ, ranging from Soft MOQ and Hard MOQ. MOQ has become one of the crucial things in the company because it helps optimize the use of your warehouse. However, some obstacles can hinder optimization using this minimum order quantity, such as manual tracking of the stock of goods and calculating MOQs. To avoid these obstacles, you can use the help of HashMicro’s Warehouse Management System.
HashMicro, as the best Warehouse Management Software provider in Singapore, can help you optimize stock inventory in the warehouse more efficiently. Some of the benefits you will get include optimizing multi-warehouse efficiency, speeding up the retrieval of goods, maximizing cheerful use, and cost-effectiveness. This system is also integrated with other modules, such as purchasing systems, inventory management, and accounting. Therefore, you can calculate minimum order quantity easily because you can track all your company data quickly and accurately in real time. Immediately switch to HashMicro to maximize your company’s MOQ strategy. Contact us now for the best deals and free demos!
