Inventory Management: How Supplier MOQs and Price Quantity Breaks Boost Profits

Inventory Management: Supplier MOQs and Price Quantity Breaks

What are the two most important factors to consider when requesting a quote? From the supplier’s perspective, the two most important things which affect price are the minimum order quantities, also known as MOQs, and the price break quantities. Both of these concepts will affect the cost of any product. They have a further significance in that understanding the impact of price quantity breaks and minimum order quantities will lend insight into how to manage your company’s inventory.

MOQs typically refer to the smallest number of product which can be ordered with a palatable profit margin for the supplier. Based on the customer base and the supply chain, the MOQs may vary from product to product and from supplier to supplier. This is why it may be a worthwhile practice to routinely gauge the competition by obtaining more than one quote for products your company stocks in inventory.

The price break quantity refers to the set amount at which the price per unit goes down. Often times a price break quantity will be something to the amount of 144 pieces, or whatever amount fits into a carton or a box, and is determined not only by the cost of packing and shipping, but also the production costs involved in procuring whatever the product may be. Typically, as the quantity goes up, the price per unit goes down.
Understanding how both of these concepts work can help you save money and avoid having to place rush orders to fulfill stockouts or backorders.

When using a software with inventory management, you will easily be able to predict when a reorder is necessary before it is an emergency. And since you understand the concept of an MOQ could impact the price you pay, you can avoid making orders that are smaller than your supplier’s MOQ, which will save you money. This also allows you the opportunity to put together larger orders and take advantage of price quantity breaks – saving you more money. The larger order quantities also benefits you because you can avoid running low or out of stock or having 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.  It will also be to your benefit to save money on shipping and warehousing fulfillment if the inventory is readily at hand.

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. Inventory management software can help make it easier. 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. If you are able to enter in the suppliers’ MOQs and price quantity breaks it will not only save time when it comes to reordering, but it will help you to leverage your strategy to maximize your profits.

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.

Please contact John Shepperson at 800-320-0210, email john@oatesco.com or visit www.oatesco.com and a member of our ERP software consultant team will help answer any questions you have about this article or your ERP evaluation. For more information about Sage ERP X3, Sage 100 ERP, Sage 500 ERP, Sage CRM and Acumatica. We offer a free needs assessment to help you get started.
   
Oates & Company helps businesses remain competitive in today’s market through the effective use of technology and processes. Oates & Company is a group of former accountants and technology professionals and we’ve walked in your shoes and conquered similar challenges. If you consider your critical business applications a strategic initiative, Oates & Company is here to help.

When it comes to business software, enterprise resource planning (ERP) systems are becoming increasingly essential for running a top performing business. Even long-established businesses are retiring their old software and implementing ERP systems despite the cost – the benefits of an ERP system can pay for themselves within 18 months.

Another version of this blog was posted by John Shepperson on Oates & Company’s Blog on July 29, 2015 at http://blog.oatesco.com/how-do-moqs-and-price-quantity-breaks-affect-inventory-management

Image courtesy of freedigitalphotos.net by dan

Topics: inventory management, inventory, john shepperson, oates co, supplier, inventory management software, price quantity break, profit margin, minimum order quantity, moq