MOQ - [Minimum Order Quantity] What Does It Mean? (And How To Negotiate It)

Transcript (auto-generated)

What's up design family and welcome to another episode of fit design TV on today's episode we'll be looking at the term m oq I'm sure this is a term that you guys have come across if you dealt with customized manufacturing we'll be looking at what it is why it exists and how to negotiate it [Music] welcome to fit design TV on this channel we'll explore what it takes to make it as an active wear fashion brand whilst providing tips tricks and actionable steps towards starting your own product line whether an entrepreneur look at the start your own brand or just someone interested in fitness fashion there's something for you here [Music] so the term moq is undoubtedly a term you've come across if you've ever dealt with customized manufacture what does it mean or what does it stand for moq stands for minimum order quantity and that's essentially the minimum number of units that you have to order from a supplier in order for them to fulfill your order for you so the reason why an mo q exists is primarily for a variety of different reasons and why they are so varied between supplier and supplier is also because of that very reason no two suppliers are like we have to establish that different suppliers have different management structures they look at in different regions they have different infrastructures so there's no way that you can have a homogeneous across different suppliers but what you do here time and time again is the issue of moq this exists primarily because a supplier is a business they have to run their operations in a way that can guarantee a minimum amount of profit per project so they can't take on a project where they cannot fulfill that profit requirement there is a certain set-up cost for any supplier in terms of setting up their machinery or organizing their labor force getting into raw materials when they're taking on an order so if they cannot hit that minimum profitability they can't take that order on and different suppliers will deal with different other suppliers so when you look at garment manufacturing the company that's cutting and sewing your garment is typically called a cut and sew supplier this is what we think of as suppliers but the supply chain is a lot more varied and complex than that this is too short of the video for too large a topic so I won't get into supply chain and the more advanced side of supply chain but understand that the garment that cuts you has so many different movie parts that you would not even be able to comprehend t-shirt I'm wearing not only has the fabric not only has the actual cuts of the fabric the patterns the sewing of the fabric these stitches it has the buttons it has the prints all that has to be sourced from different places and be brought in by shipping to one central location where it's put together and it's shipped to you this supplier that's going to cut and sew your your product I may have minimums for their buttons that they have to order so that's why you may not be able to have customized color button designs because there's going to be a minimum per color for that button supplier to supply those colored buttons so it's not always feasible to have a high level of customization when you have a low minimum order quantity so not only is there an issue of the profitability and the amortization of the set-up cost so amortization is when you have a higher set-up cost you try to split up that high set-up cost across the different quantities that you're creating so if you have $500 and if you're creating one shirt and your setup costs about hundred dollars that $500 can only be distributed the crosswalk shirt but if you have a set-up cost of $500 and you can distribute that across 500 shirts you can end up distributing that across 500 shirts so your set-up cost when it's amortized is one dollar per shirt plus the raw materials plus the labor so there are certain things that cannot be done without higher quantities and that's why we get the best prices at those quantities and if you increase you achieve was known as economies of scale where your supplier can order more goods they get better prices and that price reduction rolls on to you and ultimately hopefully the final customer so that's why a moq exists it exists from the two different parts the one is the physical production of products sometimes you can't source the materials and to the factory that's making your products needs to ensure a certain amount of profit and they need to be able to split up their setup costs across those units so without that now you're in a position where potentially you can't hit that moq it's a high barrier for so many sort of businesses and I totally understand what we have to look at is why and moq is typically a good thing when you're when you work with suppliers that are able to offer you much Emel cues what you typically find is that these suppliers are using stock fabrics and that's not a bad issue sometimes you will have to use stock fabrics but stock fabrics may not be the customized fabrics that you have requested or you've been promised so you have to look at a lower moq with a bit of a skeptical eye or to try and understand what is driving down that and look you what are the raw materials that are being used across the my products and why are they able to offer them to me at such a few quantities and if that still matches your performance that's fine there are many suppliers that are more geared towards these very very low minimums and they work with stock fabrics that are widely available in the market you just cannot expect a 100% level of customization with your garment at that point which is fine you have to pick your battles when you're going into customized production because it's a highly competitive space there are a lot of costs associated with it and if you're able to unpack the different elements that are required to go into garment you see that each of those elements has their own mo cues and if you need to customize those elements you're going to create a lot more of a setup burden on the supplier hence the higher imal cues so what are some ways to get around or to negotiate lower mo cues typically some ways to negotiate Laura and moku's is to combine your order with potentially another supplier or another company and/or if you're using a specific type of fabric you have a partner you guys can partner up to meet a certain mo q because those mo Q's are coming typically from the raw materials and if you and a partner can combine forces and create a larger order you may be able to acquire fewer units yourself but split up the mo q across different people using those same fabrics at the same time you may look at the mo q and you may be able to negotiate it by using their stock fabrics or what they have available or things that they recommend at the same time you may be able to order a large want to the affront of putting and purchase a purchase order for larger quantities up front and pay for the amount that you will receive let's just say you were a thousand shirts you pay for the amount you'll receive immediately and have the warehouse store the remaining shirts at their warehouse this is a possibility not bad every single supplier will allow for it but it is an option it's not something that I personally see happen very often but it is an option nonetheless so those are just two very basic options on how to skirt higher mo hues and ultimately if it doesn't work for you that may not be the right option for your business so you may have to pivot and you may have to find another supplier with an mlq that is more within your range you have to understand that mo cues are not uniform across different factories just because of one fact we can offer you 200 moq doesn't mean the other factory would be able to offer you the same we've seen factories which are catering towards much larger corporations that are geared and set up in a way to produce hundreds of thousands of units a month and they cannot operate their production lines without ensuring those orders or else they'll lose a lot of money and as any business owner knows at some point it becomes an economics game you will not run your production line if you're losing money on it that defeats the purpose so you also have to be able to see it from your supplier of standpoint it's not just simply a matter of trying to be greedy and obtain the largest possible or that you can because at the end of the day the Sahara also wants to make the sale but they won't be able to work with you if you cannot come to terms with what their minimum viable order is so that's pretty much it this has been a kind of a quick and easy video something that I want to share with you guys a lot of aspiring apparel brand creators product creators that have gone into customized production and have been turned off or and have turned away by the high mo cubes that are typically available in customized production space doing a little bit of research will give you more options and we highly recommend shopping around seeing what different people have to offer and finding what is the most applicable or suitable and move you for your business so that's a wrap guys a short and easy video hopefully you guys have enjoyed it what mlq means what it means for your business and how you can negotiate it potentially until next time thank you so much for tuning in to fit design TV stay awesome.