What does MOQ mean?

If you're in the B2B business, especially in the food industry, you’ll likely encounter the abbreviation MOQ, which stands for Minimum Order Quantity. Understanding what MOQ means and how it impacts your business is needed to run a proper business or startup. Hence, in this article, we'll help you understand what it is and how it affects your business.

What does MOQ mean in manufacturing?

MOQ, or Minimum Order Quantity, is the least number of items a supplier or manufacturer will make or sell in one order. This requirement helps keep production costs low and allows the supplier to make a profit while also ensuring that operations run smoothly.

For example, if a private label food manufacturer sets an MOQ of 5,000 units for packaged snacks, buyers must order at least 5,000 units per production run. If the buyer’s requirements are below the MOQ, the manufacturer may decline the order or charge higher rates to compensate for inefficiencies.

MOQ Basics

Minimum order quantities are set by food manufacturers based on their costs and how efficiently they can produce items. Here’s why they have these limits:

• Profit Margins: Small orders might not make enough money to cover production costs. MOQs help suppliers ensure they meet their profit goals.
• Fixed Costs: Food manufacturers apply MOQs because each production run comes with fixed costs, like setup, cleaning, and labor, that don’t change with batch size. For example, if it costs €100 to clean a machine, that cost is the same whether you produce 100 units or 1,000 units. At 100 units, cleaning adds €1 per unit and at 1,000 units, it drops to €0.10 per unit.
• Streamlined Operations: Large orders simplify production. They reduce the number of times suppliers need to set up for making products, which saves time and lowers costs. Therefore you may see lead times increase, because co-packers combine multiple orders from different clients.
• Material Sourcing: If a manufacturer also buys the raw materials in bulk, they may face a higher MOQ from their source. Hence it might be better to source the ingredients yourself.

MOQ Guide for Food

There is more to minimum order quantities than just a bunch of numbers. Your strategy and discussion with a co-packer can have significant impact on your budget and results. It is therefore advisable to be well-prepared about what you want and your budget. The below points should be taken into consideration when discussing MOQs with your co-packer:

• Packaging Format can Affect MOQ: Specialized packaging, like glass jars, custom pouches, or multi-layer cartons, usually raises the minimum order quantity (MOQ). This happens because suppliers might need to change their production lines, food safety processes, or the amount of manual work they do.
• Unit Count Can Be Misleading: MOQs are not the same with every co-packer. Some may charge a cost per unit, while others charge a cost per kilogram. Thus, ordering 100 units of 500g is five times more volume than 100 units of 100g, affecting costs, storage, and logistics. Always clarify what the MOQ actually refers to.
• Ingredient Sourcing: If you outsource the sourcing process, your co-packer might encounter minimum order quantities set by the ingredient supplier. For example, the supplier might only agree to work with a minimum of 200 kilograms, but if you handle it yourself, you might find someone willing to supply as little as 100 kilograms.
• MOQs Are Often Negotiable (to a point): Especially for first-time orders or pilot runs, many co-packers or suppliers are open to negotiation.
• Product characteristics may affect MOQ: Items with high moisture or sticky textures are harder to process and clean. This takes more time and care. Co-packers might run a small test batch to find any problems. If a product is tough to handle, it can increase the cost per unit.
• Allergens may affect Pricing: Products with allergens such as nuts, dairy, or gluten may need extra cleaning steps or special equipment. This can raise the overall production cost.
• Special requirements: On the other hand, pecial requirements like organic certification or allergen-free processing can raise costs. Facilities have to follow strict rules and may need separate production lines or time slots to meet these standards. This can impact pricing and minimum order amounts.

The Downside for buyers

For buyers, minimum order quantities can have both benefits and drawbacks. They allow access to quality products at lower prices because of larger production runs. However, they can be difficult for small businesses or startups that have tight budgets or limited space. Here are some ways MOQs can affect buyers:

1. Cost Implications: High MOQs require a significant upfront investment, which may not be feasible for smaller businesses.
2. Inventory Management: Large orders mean more stock to store, which can strain storage space and logistics. Food businesses also need to ensure that their products have a long enough shelf life.
3. Scalability Challenges: For startups or businesses testing a new product, meeting high MOQs can be risky. Smaller businesses might prefer working with manufacturers that offer lower or more flexible MOQs.