Minimum Order Quantity can help preserve customers while lowering inventory, improving cash flow, and profitability.

Manufacturing is predominantly a volume business. While there are some production models that use Engineer to Order (ETO) or Make to Order (MTO), most are either Make to Stock (MTS) or Assemble to Order (ATO) and require volume to justify production.

But volume business comes with tradeoffs. Because of the complexity of manufacturing finished goods in volume, the cost of goods is pressured downward. At the same time, there is a threshold, or floor, where it is no longer cost-effective to produce these goods without eating away the last bit of margin. Setup and changeover times can erode efficiency in short lot environments. Add to this the fact that your vendors may require minimum order quantities from your company for materials and the result could place a company in negative margins for small volumes past a certain point.

Timecode:
0:05 Introduction
01:20 What is the Minimum order quantity?
01:41 How does minimum order quantity work?
03:04 Benefits of minimum order quantity
05:10 Best practices for determining and using MOQ
05:31 Here are a few best practices for setting and MOQ


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