There is no denying that outsourcing manufacturing to China is an important part of the American business process. Outsourcing helps to keep prices down, giving businesses a chance to be competitive while allowing consumers to afford a wider range of goods. Understanding how the process works, though, can be difficult for those new to the game. There are a variety of terms and conditions that one must learn to navigate, and few are more important than the Minimum Order Quantity.
What is Minimum Order Quantity?
The Minimum Order Quantity (MOQ) is a standard part of outsourcing manufacturing to China. The MOQ is the minimum amount of a product that the manufacturer will make, generally agreed upon so that the manufacturer is actually able to turn a profit on the arrangement.
Typically, high-value items have a relatively low MOQ – it is costly for the manufacturer to make each item, and the client typically has a greater investment on each item. Lower-value items have a higher MOQ – manufacturing in bulk is less costly than doing so in small runs, while the price per item tends to be significantly lower. MOQs vary not only by manufacturer, but also tend to vary by industry.
Why Does it Matter?
On one hand, it’s safe to say that the real issue with MOQs is that they require a more substantial investment on the part of the company doing the outsourcing. After all, a higher MOQ means that you are going to have to pay for a bigger order – and that you will have to be confident that you can actually move that much of a product. MOQs are a major issue for companies looking to outsource work, especially for a company with an untested product or limited available capital. Knowing your MOQ will help you to determine whether outsourcing manufacturing to China is right for you.
However, the MOQ is arguably a more important factor for the company receiving the order. Remember, minimum order quantities mainly exist to help the manufacturer to make sure that he or she can actually turn a profit on his or her investment. A company that doesn’t set a MOQ is likely one that should be looked at with suspicion – after all, it would then seem that the company can turn a profit on an order of any size, something that those familiar with the manufacturing industry know is simply impossible.
Knowing the minimum order quantity required by your potential outsourcing partner is as necessary as knowing any other part of your business’ budget. Pay particular attention to the MOQ, as a high MOQ may void any advantages that you gain from a lower price per part agreement. Keeping track of what you are paying for is the best way to make sure that your relationship with an outsourced manufacturer can be profitable. Understanding where every penny of your money will be going is the key to making outsourcing a success for your business.
At ITI Manufacturing, we help you understand the MOQs and other important aspects of evaluating costs. Contact us today for assistance!