Last Friday night, we couple of friends gathered at dinner.
Once our dinner was over, chips and Coldrinks came into the picture too.
Just then, one of my friend pinpointed, “Why in the world you bought lays packet worth 30 rupees?”
“That was the only available in Reliance Fresh!” the other replied.
“Huh? And where the fuck are those 10 and 5 rupees lays gone?” she wondered.
“MOQ!” I mumbled. (MOQ is Minimum order quantity)
MOQ is the minimum number of units a retailer/supplier/manufacturer allows its buyers to buy at a time i.e. nothing below that quantity would be available.
Here, MOQ of lays is 30Rs packet! Intentionally, 20,10 & 5 rupee ones are made unavailable.
“Why did they do this?” she questioned.
“To increase the revenue, they generally do this!
They study their target audience and accordingly decide the MOQ!”
Stores like Reliance fresh has lot to offer for family and people don’t refrain in buying even a 30Rs lays pack.
On the other hand, if you go to any roadside shop, people would refrain buying even a 20Rs pack. Their, even 5Rs pack are available too.
Some other classic examples are:
- Nuts and bolts are usually ordered in a pack of 20-50 by the manufacturers. Here, the reason behind such move is the lower cost of items and thus lower margins. No supplier would agree upon sending 2 nuts & bolts (since that give negligible revenue)
- Milk Bikis biscuits are often available in 50Rs. pack, under the name of discounts. (Although, smaller packs are also available but customers eye gets watery due to discounts)
MOQ is the smartest move to roll out your inventory in bulk!
If you are the seller (more precisely supplier) and you have a good quality product, you usually keep your MOQ high,
- To ramp up your sales
- To increase your revenue
- To roll out your inventory
- To cut down your transportation cost
Remember, buying a 5Rs ParleG biscuit for yourself? But, when your father would go, he would always come up with Big ParleG pack.
The Industry’s’s way
Back in my last organization, I would often ask buyers that why in the world they don’t negotiate with their suppliers over MOQ? An SKU whose cost is 5000 with MOQ 10 would straightaway add a value of 50,000 in my inventory. Although, I would too form my own MOQ of 15 for my customers/dealers to get this inventory off my chest :p I am kidding, that was not really easy. We would usually have certain priorities like a truck should not pave it’s path for a certain customer if the only amount ordered is 2 pieces of nuts. I mean, forget about margin, we can end up paying from our pockets. Although, the buyer won’t negotiate much since a high MOQ would make his job easier. Under the name of MOQ, he would call in the inventory for like next months so as to relax for a good amount of time. However, I as a planner, would be pissed off as inventory would ramp up. Due to this contradiction, it was finally decided that no MOQ would be accepted without the approval of both Buyer & Planner. Haha, 1-1! Next, whenever any MOQ would be proposed, we would not accept it if it costs us more than 3 months inventory until and unless it’s cost was less than 20,000 INR.
Shoot in the comments, if you want more such discussions!
I’m sure you don’t want to receive this mail in your spam! So, if it’s so, please go through spam, and select the mail. A window on the top right corner will pop up, click on “Move to” and select “Primary”. There you go, you’re part of the newsletter now 🙂
Insightful