What is Maximum Order Quantity?
Maximum Order Quantity (MOQ) is the maximum number of items a customer can order in a single transaction. It is a crucial factor in the production and supply chain process, as it helps manufacturers determine the minimum amount of product to produce to satisfy customer demand. The MOQ also helps retailers budget their inventory and determine how much to order from the supplier.
Significance of Maximum Order Quantity in Shipping and E-commerce
Maximum order quantity ensures that customers can order suitable goods to meet their needs. Here is the importance of the formula.
- It avoids inventory shortage, overstocking and reduces inventory costs, as maximum order quantity limits require only a specified number of orders.
- It lowers the risk of fraud and abuse, as customers are restricted from ordering large amounts of goods.
- It ensures that orders are fulfilled promptly, as the maximum order quantity allows the system to process orders quickly.
Prerequisites of Maximum Order Quantity and How it Works
For maximum order quantity to work, these factors are taken into account:
1. Estimate demand: This can be done by analyzing historical data, market trends, and customer feedback.
2. Calculate lead time: It is the time it takes for the product to arrive from the supplier.
3. Calculate safety stock: Safety stock is the amount that needs to be kept to avoid running out of the product due to unforeseen circumstances.
4. Monitor inventory levels: This is done by regularly checking the stock levels and ordering more when needed.
Use Cases of Maximum Order Quantity
A retailer may set a maximum order quantity of five items per customer. This means that a buyer can’t buy more than five items in a day. It encourages customers to place larger orders, avoids inventory shortages, and helps retailers manage shipping costs.