When a supplier puts together a quote, there are several things they take into account. Two of the most important are minimum order quantities (MOQs) and price quantity breaks. These concepts affect how much you pay for the goods but, more importantly, they impact how you should manage your inventory.
A minimum order quantity, as the name suggests, is the minimum number of items a supplier can make without losing money. Suppliers usually establish an MOQ that allows for the smallest profit margin they are comfortable having.
“Price quantity breaks” is a pricing model where the price per unit changes based on the number of units sold. Suppliers often offer a lower unit price if you order over their predetermined amount.
So how does this affect inventory management techniques? By helping you save money and avoid stockouts/backorders.
If your forecasting skills are good enough, you’ll know what you need and when you need it. When this is the case, you can avoid making orders that are smaller than your supplier’s MOQ, which will save you money. This also allows you to put together larger orders and take advantage of price quantity breaks – saving you more money. The larger order quantities mean you won’t run out of stock or have to place anything on back order.
Paying less for your inventory might allow you to sell items for less, and not having to place items on back order offers the added bonus of happier customers.
Making inventory plans that allow you to take advantage of price quantity breaks and avoid spending extra money by never ordering less than your supplier’s MOQ isn’t always easy. You can make it easier, however, by using inventory management software. This type of software tracks the items in your inventory, so you always know how many you have and where they are located. In addition, the software keeps tracks of how quickly items come in and go out. You can even input factors such as suppliers' MOQs and price quantity breaks to get a better idea of the right time and the right volume for your orders.
Good inventory management is something every business needs. If you don’t have a good inventory management system, or would like to replace your current inventory management method, contact Oates & Company today. We’ll review your business processes before recommending the most relevant tool and help you transition to superior inventory management.
