Owner and General Manager at Sino Sales & Support Ltd
The Reality of Minimum Order Quantities (MOQ)
What is minimum order quantity?
A Minimum Order Quantity or (MOQ) is the lowest quantity of any given product that a manufacturer is willing to produce.
The primary reasons behind a factory’s MOQ is raw material availability and profitability for the manufacture and the customer.
Factories implement MOQ’s to make up the initial costs of manufacturing a new product. There are multiple costs to be calculated including; new tooling & jigs, raw materials, engineering time, staff instructional training, QC preparations, wages, utilities, etc. The MOQ is set for the factory to make a profit despite all these underlying costs. Buyers are often not aware of the hidden expenses required to set up a manufacturing run.
Another note is that manufactures have sub-suppliers that also have MOQ’s. So theoretically, a buyer is working under two or more MOQ’s to make their product materialize.
Other associated costs that creates a need for MOQ
In addition to initial startup costs, there are costs that must be factored in after the product is manufactured. If you are quoted an FOB price (Freight on Board), that cost may also include Inland freight costs to get your products to the port, then at the port you will be charged a variety fees that could include AMS, SEC, DOC, OTHC, SMD, PIF and other fees and taxes. At your country, you may have more fees to be concerned about; such as the ocean freight, import duty, customs brokerage fee, inland transportation fees and so on. All costs must be considered to know what your final actual delivered cost will be.
As an example, if the above fees added up to $500, that means if you buy 100 units, that equates to $5 per unit on top of the actual unit cost. If you order 5,000 units, with the exception of freight costs and import duty, most of the above fees won’t change so your new amortized cost per unit is just ~$0.10. Whether you ship 100 or 5,000, your supplier still has all the same amount of work to do in preparation of the order, and most of all the above charges will be added in. Obviously the more you buy, the less your per unit cost becomes. Both seller and buyer must consider all the costs to plan your business.
How to reduce MOQ
Your best bet for reducing an MOQ from a supplier is by building a relationship through multiple product runs, then MAYBE they will be willing to work harder and lower the MOQ.
If the MOQ isn’t in your budget, then your option might be to purchase wholesale or as they say “off-the-shelf.” Buying wholesale will get you started to build your market and then potentially reaching the manufactures MOQ and thus reducing your costs. Of course, proprietary products and most inventions must be tooled up to be manufactured so finding outside financing might be required.
Conclusion
In conclusion, it’s not uncommon for a customer hoping to buy less than the manufactures MOQ. Chinese manufacturing companies are notoriously known to operate on razor thin margins. We at Sino Sales & Support always try our best to meet the expectations and budget requirements for our customers and sometimes due to our favorable relationships with our manufacturing partners we can. However, it’s important for you to know why sometimes it’s just not feasible.
If you have any additional questions about MOQ’s or any other export questions, reach out and let’s work on a plan that will make it a win-win-win opportunity for all parties concerned.
For more information on how we can help you protect yourself in China, reach out to me at rwilliams@world-trading.com.
