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China is well known as the world’s leading manufacturer. However, overseas sourcing is rarely as simple as it looks; there are a number of challenges that come with sourcing from Chinese manufacturers and large minimum order quantity (MOQ) is just one of them. But, why the Chinese manufacturers love asking for it? How can we negotiate for a lower minimum order quantity with them?

 

A minimum order quantity is the lowest number of units of an item that a supplier or factory is willing to produce in an order.

 

What’s a minimum order quantity (MOQ)?

 

A minimum order quantity is the lowest number of units of an item that a supplier or factory is willing to produce in an order.
Factories often require a high volume order for production to be profitable since large orders always mean higher profit margins even at lower rates per unit.
For small or medium sized businesses, meeting the minimum order quantity requirements set by factories can be a real challenge. This is especially true for Chinese manufacturers or other low cost manufacturing countries that tend to have relatively high quantity requirements. Such factories often have a hard time making good profit margins which may be as low as 3 to 4% according to Chinaimportal.com, so they have to increase their minimum order quantity to reduce the risk associated with each order. As a result, getting Chinese manufacturers to lower their minimum order quantity can be pretty difficult, but that doesn’t make it impossible. Here are some ways you can do it.

 

1. Use standard components

 

While product customization can lead to great success in a private label business, you may have to reconsider your customization plan if you are serious about lowering the minimum order quantity. Simple products requiring generic components that the factory will most likely have available are easy to produce. Such products will allow the factory to make use of standard components that the factory already has at hand or can easily acquire from their existing contracts.
In direct contrast, highly customized items that require unique or custom-designed components can be expensive and taxing to produce. This will eventually lead to a high costs coupled with high minimum order quantity requirements to alleviate the cost on the part of the supplier. Furthermore, such products may need components that aren’t in line with the supplier’s primary product line, forcing the factory to subcontract entirely new designs from Original Equipment Manufacturers (OEMs). This may force the buyer to shoulder the burden of the minimum order quantity alone since few other buyers will need such components for their products.

 

2. Negotiate for a lower minimum order quantity

 

For some problems, the most simple of solutions is often overlooked so before anything else, try negotiating for a lower minimum order quantity. However, since Chinese manufacturers are almost always reluctant to lower the minimum order quantity, then you shouldn’t totally rely on this as your only option. Keep in mind that most manufacturers don’t hold any stock and will manufacture a product for every order, so remember to keep your negotiation reasonable. It’s impossible for a factory to initiate the whole manufacturing process just to make 10 products but a reduction of the minimum order quantity from 1000 to 600 may be feasible. It’s a good idea to start your negotiations only after ordering a sample from the manufacturer to convince them you are serious about getting into business with them. The next step is to convince them that you are a small buyer or just starting out and you may be surprised how reasonable they can be. If all else fails, offer to pay for a higher price for the products to offset the lower profit margins that come with small minimum order quantities.

 

3. Consider small manufacturers

 

When scouting for suppliers, don’t just focus on large, well-established manufacturers but also consider their smaller counterparts. While larger manufacturers are often able to offer lower production rates due to economies of scale, you may need to turn to small manufacturers if you need lower minimum order quantities. Such manufacturers may be much more flexible when it comes to negotiation since their production output may be much smaller than larger firms. Furthermore, small manufacturers are generally hungrier for business and therefore less likely to exclude you based on your order value alone. However, you should be very careful when going for such manufacturers since a low minimum order quantity isn’t everything when it comes to sourcing. Streamline your vetting process to exclude any manufacturer who is unable to comply with product regulations or meet your deadlines.

 

4. Use same components across multiple product lines

 

The minimum order quantity quoted by manufacturers is usually heavily influenced by the minimum order quantities quoted by subcontractors. For instance, an alarm clock manufacturer may subcontract components such as clock dials or materials like fabric from different sources each demanding their own minimum order quantities. You’ll therefore notice that a product requiring a lot of different components or materials will compel the manufacturer to meet the minimum order quantity requirements of various subcontractors. The result will be a steep increase in the minimum order quantity quoted to you.
On the other hand, using a similar component for a wide array of products will work for your benefit. For instance, you can use the same fabric for different lines of clothing or the same inner moving components for different alarm clocks. The manufacturer will therefore be able to meet the subcontractor’s minimum order quantity requirement easily meaning that you’ll enjoy a wide assortment of products with lower minimum order quantities.

 

5. Buy from middlemen

 

Factories usually have high minimum order quantity requirements but that may not be the case with middlemen like sourcing agents or trading companies. Due to this, finding a sourcing agent can be a good strategy to reduce your minimum order quantity. Such companies may have access to clients with large purchasing abilities and a very good relationship with the manufacturer. By using agents as proxies, they may be able to negotiate for much lower minimum order quantities than you would be able to on your own due to their relationship with the manufacturer. Furthermore, by consolidating orders from different clients, such agents are able to take advantage of joint order to meet large minimum order quantity of Chinese manufacturers and even reduce the cumulative costs for each client. This is because fixed costs like transportation fees are shared among the clients.