While you are sourcing from China, you may always hear about Minimum Order Quantity (MOQ), it makes your business difficult when you only own limited funds, or simply want to play it safe by starting small to test the market before making larger purchases.
Before you begin negotiation, the first step is to understand why the supplier has imposed a MOQ. Is it because there is a lot of work upfront? Or maybe it’s because they prefer to work with larger buyers. Understanding the reasons behind the MOQ will help you better understand their position and allow you to negotiate and propose to best counter offer.
Once you have a better understanding of your suppliers’ position and follow our sourcing advice, you possibly can get a lower minimum order quantity.
1: Limit product customization
Products can be customized to a varying degree. A custom logo on a pre-existing factory design is less complex to achieve, as compared to a device built entirely with custom designed components. Simple forms of product customization enable the supplier to still use standard (i.e. high turnover) components, while highly customized components require the supplier to step out of its ‘normal purchasing routines’ and subcontract an entirely new design.
Such OEM components may not be compatible with the manufacturers’ primary product line, therefore forcing the buyer to meet the entire MOQ alone. This is rarely a problem when basing a product on ‘standardized components’, as these can be divided on a larger number of buyers. Let’s take a wristwatch as an example to demonstrate what this might look like in the world:
• Cover MOQ – Factory standard: 600 pcs / OEM: 900 pcs
• Handle – Factory standard: 600 pcs / OEM: 5,000 pcs
• Base – Factory standard: 600 pcs / OEM: 4,000 pcs
As showed above, to customize components may result in a vast increase of the MOQ requirement. The lesson here is that you should limit the ‘degree’ of product customization, and base on the product on ‘factory standard’ components – to the extent possible.
2: Streamline the usage of materials
As said, the suppliers MOQ requirement is often a direct reflection of the MOQ of its subcontractors. Chinese supplier purchase materials from various subcontractors, and not just one or two. As a result, a product made of many different materials may force the supplier, and in the extension you, to satisfy the MOQ requirement of many subcontractors. This can in turn results in an escalation of the MOQ requirement, especially if you have highly specific requirements.
What if you use the same material on a larger number of different products, instead of just one? Should this not allow the supplier to satisfy the subcontractors MOQ requirement, while you can still enjoy a wider product assortment? Assuming the manufacturer is somewhat flexible, this is often a solution for small buyers to lower the MOQ requirement.
3: Offer to pay a little higher price
The MOQ requirement is often, but not always, a direct reflection of the subcontractors MOQ requirements. Many Chinese manufacturers maintain a stock of ‘high turnover’ materials and components. Therefore, they can, at least if they are willing, manufacture a smaller quantity of products. But considering their low profit margins, it’s often not worthwhile the time, effort and risk involved. Offering to pay a higher price, for example 10 to 20%, may give the supplier an incentive to accept a small volume order.
Conclusion
The MOQ requirement cannot simply be negotiated away or vanish. While some suppliers may accept a slightly lowered MOQ, requesting it to be removed completely is the same as asking your supplier to lose money for the sake of your business. Many importers try to play the “my orders will be larger in the future” card, but most suppliers hear this on an almost daily basis and only a fraction of their buyers can back up the claim in the end.
