What Exactly is MOQ?
MOQ – Minimum Order Quantity – is typically known as the minimum number of finished items Chinese manufacturers are willing to make in a single production run. Everyone knows China factories will not manufacture a quantity less than their MOQ, right? Not necessarily.
We will explore some options but first know that there are actually TWO MOQ’s. The most well-known is what we have already mentioned – the actual number of finished items Chinese manufacturers are willing to make in any single production run. The second MOQ – one that usually does not get mentioned as much as it should – is the material supplier’s MOQ. Chinese Manufacturers must purchase their raw materials from material suppliers. The material suppliers sell material in lots or standard units of measure to keep things simple as well as to not wind up with odd lots of inventory they cannot easily sell. Therefore, when China manufacturers contact material suppliers to inquire about pricing and availability of a particular material – especially if the quantity is close to that factory’s MOQ – there is a chance the material supplier’s MOQ may be greater than what is needed to satisfy the China manufacturer’s MOQ for finished product quantity.
China manufacturers, just like any company around the world, do not want to pay out money if they are not certain they will get a return on their investment. If the product is for a reliable customer who reorders on a regular basis there may be no deposit required. However, if the product or customer is new and unknown there is no way for China manufacturers to know if or when there will be a reorder. What typically happens in this case is that the factory will be reluctant to put out the money for the overage of material and will ask for an additional deposit to cover that part of the cost. That excess material will be kept in the China manufacturer’s factory until such time – a reasonable timeframe, not indefinitely – there is a reorder. The excess material is then used and the cost of the excess material will be credited against the current cost of the finished goods.
Is an MOQ Set in Stone?
An MOQ is, for the most part, set in stone. That is due to the fact that Chinese Manufacturers want to make money by manufacturing enough of an item to also cover their cost of the time and expense required to set up the machinery, the tooling, jigs, and to train workers. A short production run takes as much time and expense to set up as a large one making the short production run much less profitable.
If a short run is unavoidable for whatever reason there may be ways around it. First, an offer to pay a “small run fee” may be acceptable. This fee covers the set up and, in some cases, the training of the workers. China manufacturers may agree to this scenario if there is a reasonable expectation of larger quantity production runs in the future. Remember though, all China manufacturers are different in what they are willing to do. The difference could be the time of year, or the fact that a particular factory may not be as busy as they would like to be and the owners need to keep the workers busy. It could be a company like ITI Manufacturing has a strong relationship with factory management and is able to persuade them to make a “test run” of a first-time product for a new customer.
Another way to work with China manufacturers’ MOQ is to submit a large PO and asking for only a small shipment to be first to ship. The factory may be able to purchase the raw materials they need in bulk and use a small amount of them for the small first run then holding the bulk of the materials in their warehouse for the upcoming, larger production run. Two comments on this scenario: First, the landed cost of the small run may be greater due to shipping a smaller quantity and second, always be up front with the factories about the expected quantities and timeframes for each production run. It does not take much for Chinese manufacturers to lose interest in a product and a particular customer if it cannot depend on what they are being told.
There is more to learn about MOQ as well as finding creative ways to lower costs. Each company and situation is as different as there are different Chinese manufacturers.
For more information, contact ITI Manufacturing for help with finding the right China manufacturers.