Overseas manufacturing has been part of America business for decades. Companies outsourcing to China have greater flexibility to keep prices down and enjoy greater profitability. Offshore manufacturing is as much an art as it is a science. The differences in business cultures bring with it terms with which US businesses need to be familiar. One term in particular seems to enjoy the status of “most confounding”: MOQ or minimum order quantity. In this blog we will explore MOQ and why it’s important to understand it.
MOQs: What Are They?
The MOQ is a common factor in overseas manufacturing. MOQ is the smallest quantity of a product a Chinese factory will manufacture. Generally, MOQs are lower for higher-value items and higher for lower-value items. The higher value items are more expensive for Chinese factories to manufacture, and thus customer’s investment is greater. Correspondingly, lower-value items are less expensive to manufacture so the MOQs are higher. Each industry and factory within a particular industry has different MOQs.
Why are Minimum Order Quantities So Important?
MOQ can have a significant influence on if a company will have a new product made in China. A company that wants to have a new, untested product made in China may balk at the prospect of moving forward due to the MOQ being higher than the number of units they need to initially test the product’s appeal. Higher MOQs mean paying for larger orders therefore companies must be confident in their ability to sell that amount of product. Knowing the MOQ is a central factor in a company’s decision-making process.
MOQ Issues for Chinese Manufacturers
MOQs also play a role in the profitability of the Chinese factory. MOQs are protection against the factory losing money. If the quantity being produced is above the MOQ the factory does not have to worry the costs of training personnel and production set up will eat into their profit. While there are situations in which a factory will agree to manufacture a quantity less than their stated MOQ there likely will be additional, separate costs quoted.
Subcontractors and MOQs
It is also important to note that a China manufacturer’s suppliers and subcontractors may also have MOQs for components or specialty work. The inter-working of how MOQ influences a quote from a particular Chinese factory can be complex as each entity in the supply chain could very well have their own MOQ which may or may not neatly coincide with the customer’s situation. ITI Manufacturing works face to face with China factories to negotiate a reduced MOQ by determining which and how many components suppliers keep on hand, timing of manufacture, and other details important from the factory’s perspective. ITI Manufacturing’s expertise allows clients to thoroughly understand their options including how MOQ could influence their project.
Learning about MOQs is an Important Part of Outsourcing Production to China
Understanding MOQs is one of the important details when considering China manufacturing. American firms should pay close attention to minimum order quantities as high MOQs has the potential to reduce benefits gained from going offshore. ITI Manufacturing has been working in Asia since the mid-70s. We are experts at helping companies understand the intricacies of China manufacturing and how to maximize the benefit. When you are ready to explore overseas manufacturing contact ITI Manufacturing.