When building a custom electronic product, oftentimes there is a minimum amount in which the manufacturer will require you to purchase in order for them to build it. This amount is known as the minimum order quantity (MOQ).
How is the MOQ on a product determined?
Minimum order quantities are ultimately determined by the amount of time and capital it will take to create a product.
The more custom a product, the higher the MOQ will be. Minimum order quantities on custom products can be as high as 5,000 units.
Why are MOQs often so high? Typically, the more resources it takes to create the part, the higher the MOQ will be. For a manufacturer to find a product worth their resources, an order needs to be of higher volume.
4 Factors that Influence a Product’s MOQ
The size of the bill of materials (BOM)
A product’s BOM can have hundreds of components that each need to be purchased and delivered to the manufacturing facility. Managing and organizing all of these components requires time on the manufacturer’s behalf. The time it takes to review all these different pieces affects the MOQ.
The effort to assemble the final product
Each product’s pieces need to be put together to make the final product. To set up an assembly line, planning must be done beforehand. This includes reserving floor space within the factory for the assembly process, training operators and supervisors on the assembly steps, and setting up equipment and machines specific to your product build. The more complex your assembly line requires can lend to a higher MOQ.
The amount of testing required
Inspecting each unit ensures that your product will be delivered to your end-customer at the quality level that you expect. There are a variety of ways to test and inspect a product. These include visual inspection, electrical integrated circuit testing, software testing, and testing against environmental elements such as water, heat, or abrasion. The amount of testing needed, along with any custom testing specific to your product, influences the MOQ.
The complexity of packaging the device
Products can be packaged in two ways. The first is high-volume bulk packaging. This type has multiple units placed in one larger box with interior packaging like styrofoam or anti-static trays. The other is retail packaging. This is when the product is put in a nice display box. It is what the end customer will see on their local retailer’s shelf. Within each of these packaging methods, there are other complexities that come into play such as if a product has a variety of SKUs that have specific retail packaging to that SKU. Complicated packaging can make for a higher MOQ.
The above factors all involve human capital and time resources which in turn affects the MOQ that the manufacturer sets for building your product. While the option to negotiate for a lower MOQ is possible, it can mean a higher cost per unit.
Establish a relationship with your electronics manufacturer so that you can have conversations about your product early in the design process. A good manufacturer will point out areas that can be adjusted in your product design to reduce costs and potentially lower your minimum order quantity. The earlier you discuss these items, the easier it will be to make adjustments so that your MOQ and overall product costs are aligned.