Part 1: Unlocking Operational Efficiency through Pooled Minimum Order Quantities
Welcome to Part 1 of the Tenet Consulting Value Driver Series, where we shine a light on often-overlooked yet impactful opportunities to unlock additional value in supplier negotiations. While securing piece price reductions remains a cornerstone of strategic sourcing, leading manufacturers know that non-price benefits can also yield significant operational value and cost savings when effectively negotiated. At Tenet, we strive to help our clients extract maximum value by negotiating comprehensive supply agreements with suppliers—optimizing both commercial and operational outcomes.
This article focuses on Minimum Order Quantities (MOQs) and how these common supplier requirements can pose challenges for manufacturers. Discover how a strategic approach to optimizing MOQs can unlock substantial operational value.
Understanding Minimum Order Quantities (MOQs)
Minimum Order Quantities are typically employed by suppliers to support efficient manufacturing and inventory management for them—yet they are often not effective nor efficient for you, their customer. From the supplier’s standpoint, MOQs help drive economies of scale, enable longer production runs, and minimize costly changeovers. They also aid in managing raw material purchases and inventory more effectively.
However, MOQs can be misapplied. Some suppliers set artificially high thresholds that exceed a customer’s operational needs, especially when MOQs are enforced on a per-facility or aftermarket depot basis rather than being aggregated across locations. This misalignment can lead to excessive inventory, unnecessary carrying costs, or even production losses due to difficulties in meeting MOQ thresholds at individual sites.
Tenet’s Approach to MOQ Optimization
While our primary objective is to negotiate away MOQs entirely when feasible—especially for high-volume or strategically critical components—there are times when valid operational reasons necessitate retaining them. In such cases, our negotiation strategy focuses on establishing an MOQ structure that reflects our client’s operations instead of the supplier’s sales preferences.
Instead of accepting site-specific MOQs, we advocate for pooled MOQs, where order quantities are aggregated across all of a client’s manufacturing sites and aftermarket service depots. Whether evaluated monthly, per demand period, or quarterly, this pooled structure allows clients to meet MOQs collectively without compelling each location to order unnecessary inventory or pay higher prices for parts below the MOQ threshold. Within the Master Supplier Agreement, MOQs are assigned at the product level, based on real demand rather than blanket policies. Supplier compliance is supported by tracking mechanisms owned by suppliers to ensure that pooled thresholds are met.
Value to the Client
A pooled MOQ strategy offers both immediate and ongoing benefits:
- Consistent Pricing Across All Locations: Pooled quantities justify better pricing tiers that apply universally, regardless of the order’s source.
- Reduced Inventory Costs: Aligning MOQs with actual consumption enables clients to order precisely what they need—when they need it—without inflating inventory levels.
- Improved Operational Flexibility: Manufacturing and service locations gain the autonomy to order in smaller, more manageable batches while still adhering to corporate procurement standards.
- Cost Avoidance: Minimizing excess purchases and warehousing expenses prevents wasteful spending beyond the piece price.
One of our clients experienced a 20% reduction in inventory costs after implementing a pooled MOQ strategy, demonstrating the real impact of our approach.
At Tenet Consulting, we strive to unlock these efficiencies in practice, not just in theory. Our structured, outcome-focused negotiations elevate sourcing from a transactional exercise to a true operational advantage.
Discover the Benefits for Your Organization
If you’re ready to explore how optimizing your Minimum Order Quantities can drive efficiency and reduce costs in your operations, contact Tenet Consulting Today. Let us help you implement a tailored approach to supplier negotiations that delivers real value!
