Have you ever gone to the store for baking supplies, but when you try and buy one stick of butter, they only sell packs of six?
But I don’t need six sticks of butter, you might think to yourself. I’m not the main character in an algebra problem.
The minimum item amount for a purchase doesn’t always align with the plans for your project. But how does this issue affect large-scale manufacturing, and how can you prevent it from increasing your cost of production?
At Strouse, we know material suppliers sell massive quantities of their supplies because we have decades of experience planning around orders with a high minimum quantity.
If you can recognize the impact of material order quantities on your future production, you’ll begin to understand material cost breakdown when placing an order and how you can be intentional with your purchasing amounts to make the most out of ordering material.
The material quantity gap refers to increments of material that can be purchased from the original supplier, and how these large quantities can misalign with the number of products you intend to order.
Manufacturers who order materials abide by what’s known as the Minimum Order Quantity (MOQ), which determines the amount that must be purchased per order.
Although you might intend to order a set number of products, it’s common for the set MOQs to be much higher than the amount of material you’d need for the single order you’re looking for. You might encounter problems when the MOQ doesn’t match the amount of material in your order.
Your minimum order quantity can significantly impact your final cost depending on whether it matches the number of parts you wish to purchase.
Suppose you wanted to order 1,000 products, but the material was only sold in increments that produced 100,000 products. You might need more time before committing to such a vast number, especially if your part is still in the development stage, where you might make design changes.
Matching the MOQ to the number of parts you order, or getting as close as possible, is crucial to avoid excessive material costs, wasted inventory, or cramped warehouse space.
In cases where the supplier’s MOQ exceeds your purchase intentions, you might 1) place a larger order 2) find a different material or supplier 3) accept the material loss or 4) pay at a higher price
Prototyping often uses sample materials, but when the order quantity exceeds the available sample material or material in-house, the customer will need to pay the supplier’s MOQ.
The leap from prototype material to production material cost is a major issue for aspiring entrepreneurs. Depending on the material they choose for their product, the buy-in cost for a project could be extremely high.
One solution to mitigate the difference between prototype and production costs is switching your high-MOQ material for a cheaper one. This might work if you can find a suitable alternative, assuming your project doesn’t require official validation and verification, in which case you’d need to prototype with the final material.
You could also go ahead and pay the MOQ if you need more material during the prototype phase, but this would likely be near the end of the design phase, or else you’d risk spending a large amount on material or design that’s subject to change.
Material order quantity affects the delicate decision of determining how much you can reasonably invest in your first order. Are you confident in the immediate success of your design or product? It can be challenging to make an expensive commitment, and you’ll want to consider all your options before focusing on pleasing financial investors.
Finding the right material quantity will differ based on each customer’s production goals.
For example, suppose you’re already planning to place a year’s worth of repeat orders using the same material. In that case, purchasing a more significant amount upfront at a better proportional cost might be beneficial.
Scheduling multiple orders over a more extended period is called placing a Blanket Purchase Order (BPO), and it’s one common strategy to reach larger MOQs by paying for more material upfront.
If your MOQ left you with enough material to produce 10,000 products, you might place a blanket purchase order to buy them over the next few months. This could be 1,000 parts one month, 4,000 the next, and 5,000 the last. Even though you’d be paying for 10,000 parts, it allows you to spend more time building stock.
Possible downsides to ordering more to match the MOQ include the risk of expiry based on adhesive shelf life, meaning the adhesives could go bad before you can use them. However, if you can place an order far in advance, manufacturers can coordinate with suppliers to stagger orders depending on when they process the material and the date you need it.
One of the most straightforward yet expensive options is to increase your order to reach the MOQ. Increasing your order makes sense if you have a use for more products at this time, as obviously, you wouldn’t want to blow thousands on an order you might not need.
You can also coordinate with your manufacturer to find a different material or company. Many companies re-sell materials in smaller quantities, which helps to reduce material waste. Unfortunately, this comes at a higher cost.
Another option is to supply your own material, meaning you would be stocking your manufacturer yourself rather than having it go from supplier to manufacturer. Yet, if you’re placing a blanket purchase order, your manufacturer will want the material upfront to avoid shipping delays that could delay the process.
Working alongside a manufacturer allows you to collaborate and reduce the material price using cost-efficient strategies. Instead of turning and running once you hear the material price, discuss with your manufacturer to see if there’s a way to make it possible.
The MOQ varies considerably based on the material and the supplier you’re buying from, which is why you should discuss the possibilities with your manufacturer before making a material purchase.
Although you might not intend to order thousands of parts upon entering production, the intervals of MOQs could lead you to spend more than intended. Even so, you can plan your orders strategically to avoid falling into the high costs caused by high material order quantities.
If you have a material in mind, it might be time to find out how much your MOQ is and how it’ll affect your order. Talk to a manufacturer about your part to figure out how to place an order strategically, even if you plan to scale up your production later.