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The Minimum Order Quantity (MOQ) requirement specifies the lowest quantity of a certain product that a supplier is willing to sell. If the importer cannot reach the MOQ requirement, then the supplier is not willing to enter production.
Supplier in China, and other low cost manufacturing countries, tend to have fairly high quantity requirements. In this post I explain why so is the case and what you can do about it.
1. Low profit margins demands larger volumes
Most Chinese manufacturers tend to operate on razor thin profit margins. Often as low as 3 to 4%. Low profit margins require the supplier to produce a large quantity of products in order to break even.
2. Your suppliers MOQ requirement is a reflection of the MOQ set by their components and materials subcontractors
The manufacturer is not always to blame for high Minimum order quantity requirements. Chinese suppliers tend to keep a minimum stock of materials and components.
As such, they must buy materials and parts from subcontractors, on an order to order basis. This in turn requires that the factory can satisfy the MOQ of the subcontractor.
This also explains why different items, and different materials (or even colors of the same material) has different MOQs.
With some effort, it is possible to work out how the MOQ can be lowered, by identifying which materials and components the supplier keeps in stock, or can buy in lower minimum order volumes.
There are, however, certain limitations to this approach. For example, materials that are compliant with REACH, or other chemical regulations, must be procured in a larger volume.
As product compliance is not optional, going around the MOQ requirement using ‘standardized materials’ may not always work.
3. Chinese suppliers often don’t keep stock. They ‘make to order’.
It would be really easy for a factory to sell low volumes, if they only kept ready made units in stock. However, they rarely do. At least not when it comes to products that are ‘export ready’.
Indeed, you can go on Taobao.com and find tens of thousands of suppliers, all with ready made goods.
But, off shelf products in China are manufactured for the domestic market. That is a problem, as such products are, for obvious reasons, not manufactured in compliance with overseas (i.e., US or EU) product labeling requirements and safety standards.
For example, all products in the United States must carry a country of origin label (i.e., Made in China), in English. While some off shelf products may be compliant, you will need to look long and hard for them.
So, let’s get back to the question. Off shelf goods can be purchased in small volumes, the problem is just that you cannot buy such products – and as a result, you are back to “make to order” which means you must meet the suppliers MOQ.
4. Manufacturers often have more than just one MOQ requirement
Many factories present a single MOQ, for all products. However, that is rarely the case.
Let’s take the textiles industry for example. An Apparel manufacturers MOQ often looks like this:
- Per unit: 1000 pcs
- Per standard material: 500 pcs
- Per custom material: 1000 pcs
- Per standard color: 250 pcs
- Per custom color (i.e., RAL or Pantone): 500 pcs
- Per size: 250 pcs
As you can see above, standard materials and colors (i.e., those with higher turnover) are sold with a lower MOQ. The more you customize a product, the higher the Minimum order quantity requirement goes.
You can make this to work in your favour, if you can manage to get this information from your supplier.
In the example above, you must buy 1000 pcs. If you buy a T-shirt in a standard material, in a standard color – you can get 4 different products (SKUs).
On the other hand, a custom material, would only get you one SKU, as the MOQ requirement is the same as for the “per order” MOQ.
This explains why suppliers tend to have higher MOQ requirements for products, while prints and other modifications can be offered with lower MOQs. The same often goes for cutting and other procedures that can be managed by the supplier.
5. How you can lower the MOQ requirement
You can negotiate a lower Minimum order quantity requirement from your supplier. Yet, as mentioned in this article, the supplier often has very limited room for reducing the MOQ.
In fact, they may not be able to offer you a lower MOQ than they already do. At least not without taking a loss, or being forced to themselves take a bigger risk by buying more materials and components than are actually used for your order.
Some suppliers may consider offering buyers a lower MOQ, in return for a higher price. But, working out the suppliers quantity requirement structure is often far more efficient.
By doing so, you can design your product, and use materials and parts, that the supplier is able to procure in lower volumes.
You can also work with your supplier to find out how
6. Case Study: Bathroom Carpets
A few years ago, a client arrived in Shanghai to visit manufacturers of bathroom carpets. This client owned two stores in Europe. Big enough to match the suppliers Minimum order quantity, but not for more than one or two products.
That’s a problem, because stocking up 1000 pcs of blue rugs, and another 1000 pcs of the green ones, is not viable for a small business operating two shops.
Hence, the client’s objective was to find out how they could create additional SKUs (i.e., more colors and shapes), while satisfying the manufacturer’s Minimum order quantity.
As said, this can only be done if you find out the suppliers MOQ structure. Luckily, we did, and the result was as following:
- Per Material: 1000 pcs
- Per Color: 250 pcs
- Per Size: 50 pcs
What we found here was that the MOQ was controlled by a subcontractor. The textiles manufacturer.
However, they had more flexibility when it came to the color. Hence, we solved one major issue.
But, an ever bigger deal was the discovery of the suppliers own MOQ per cutting, which was set at 50 pcs.
That makes a lot of sense, as the supplier can control the MOQ per size by itself. Cutting is a simple process, that doesn’t require a huge quantity, per variation.
Hence, the client was able to buy rugs in 4 different colors. Each in 5 different shapes. That’s up to 20 SKUs.
